Can I use Cleardocs to exclude specific named persons from being beneficiaries of a discretionary trust?
The Cleardocs Discretionary Trust - Direct Lineal Relatives document package will limit the beneficiaries of the trust to the named beneficiaries,
and their direct lineal relatives (parents, children, grandchildren etc).
If the trust intends to purchase land now or in the future, then the Cleardocs Discretionary (Family) Trust allows you to select whether
you wish to exclude 'foreign persons' from receiving distributions of income and capital by including clauses which prevent distributions
being made to a person who is a foreign person.
The Cleardocs Discretionary Trust - Direct Lineal Relatives document package will limit the beneficiaries of the trust to the named beneficiaries,
and their direct lineal relatives (parents, children, grandchildren etc).
In addition, this product includes the following options for excluding particular classes of persons as beneficiaries:
foreign persons — when you create your deed, you can choose whether you wish to limit distributions of income and capital by
including clauses which prevent any distributions being made to a person who is a foreign person (this exclusion is irrevocable).
by the trustee excluding classes of beneficiaries — the trustee also has an express power under the Cleardocs discretionary trust
deed to exclude any particular category of the 'classes of eligible beneficiaries' set out in the schedule to the deed.
What are the advantages of a direct lineal relatives trust?
The direct lineal relatives trust limits the range of persons who may benefit from an income or capital distribution from the trust, to
persons who are related by blood to the named beneficiaries.
The primary purpose is to ensure that, to the extent possible, the assets of the trust only benefit those blood relatives, and cannot be
distributed to, say, spouses of blood relatives (or nieces, nephews and other persons who are related by blood only to the spouse). They are
used by families keen to ensure that, over the life of the trust and beyond the first generation who establish the trust, this original,
primary purpose of the trust is preserved.
Although the classes of beneficiaries is very narrowly defined in the deed, the trustee also has a power to nominate additional classes of
beneficiaries — provided that the trustee is satisfied that the class has a sufficient connection to the existing beneficiaries — such as
'other trusts of which the existing beneficiaries are also beneficiaries'.
The trust must also be complemented by appropriate estate planning to ensure continued control of the trust by blood relatives.
When might a discretionary trust be considered a 'foreign purchaser' or 'foreign person' or 'foreign trust'?
The answer to this depends on the jurisdiction, and on whether you are asking the question in relation to foreign acquisitions and takeover
laws, stamp duty laws, or land tax laws.
In some jurisdictions, a 'foreign trust' or 'foreign purchaser' will be any trust in which a foreign person may be entitled to receive a
distribution of more than 50% of the capital of the trust estate: this would apply in respect of any discretionary trust where, for example, a
foreign natural person falls within the class of eligible beneficiaries.
In other jurisdictions, a trust will only be a foreign trust where, for example, a foreign person is named as a specified beneficiary, or
would take distribution from the trust as a taker-in-default (that is, where the trustee fails to validly exercise his discretion).
What are the relevant surcharge rates of duty and land tax, relevant to 'foreign trusts'?
In Victoria, the total stamp duty surcharge rate is 13.5% (5.5%, plus an additional 8%). Regarding land tax, additional land tax of 2%
is payable on top of the land tax already payable.
In NSW the additional transfer duty, to be paid on top of the normal stamp duty (which operates on a scale), is 8%. Regarding land tax,
additional land tax of 2% is payable on top of the land tax already payable.
In Queensland the additional stamp duty, to be paid on top of the normal stamp duty (which operates on a scale), is 7% and additional land tax is levied at 2%.
In Tasmania, foreign purchaser additional duty is levied at 8% on the proportion of the dutiable value of residential property directly or
indirectly acquired and 1.5% on the proportion of the dutiable value of primary production property directly or indirectly acquired.
In Western Australia and South Australia the additional stamp duty, to be paid on top of the normal stamp duty is 7%.
In the Australian Capital Territory, additional land tax of 0.75% is payable on top of the land tax already payable.
Can I amend my existing trust deed to exclude foreign beneficiaries?
Yes, but the question is whether this will be sufficient in all circumstances for the trust to safely navigate the relevant legislative
provisions.
If the trust has been established, but has not yet entered into any binding arrangements to acquire the relevant asset, then the deed could be
amended at that time.
If the trust has already acquired the relevant asset, then the change to the deed is unlikely to assist. However, for the purposes of annual
land tax assessments, it may assist to amend the trust deed before the next date for assessment of land tax.
You can use the Cleardocs Discretionary Trust - Deed of Variation (excluding foreign persons) product to vary your trust deed to exclude 'foreign persons' -
however that product will not assist you if you have named beneficiaries who are 'foreign persons' or where a 'foreign person' is involved in decisions regarding
the administration or conduct of the trust for example, the appointor, trustee or director/shareholder of the trust is a 'foreign person'. In that case you will need to obtain legal advice.
Can I address all the relevant risks regarding foreign trusts and surcharge duty and land tax, by only amending the trust deed?
No.
This is because the different laws assess different characteristics of the trust to determine whether the trust is a 'foreign person'.
The laws in the different jurisdictions work on one or more of the following assessments:
whether a foreign person can or may receive a distribution of capital, even if they have no right to (and their distribution may only
result from the trustee exercising its discretion);
whether a foreign person is named in the deed — even if the deed operates to prohibit distributions to that person while they are a
foreign person;
whether the relevant authority considers that a foreign person has a substantial interest in a trust estate, by reference to whether the
authority considers the person 'has the capacity to determine or influence the outcome of decisions about the administration or conduct of
the trust': this would involve an assessment of the role of a foreign person as a director or shareholder of the trustee, or in the role of
appointor.
So drafting a trust deed to prevent distributions to any person who is a foreign person — as the Cleardocs deed does — will not assist if:
a foreign person is named in the deed; or
if a foreign person is not named in the deed, but nevertheless is involved in decisions regarding the administration or conduct of the
trust: whether, for example, as a director or shareholder of the trustee, or as an appointor of the trust.
Should I get a ruling in relation to my trust if foreign persons are involved?
Yes.
This is because the relevant laws all operate differently with varying levels of ambiguity about how they are to be interpreted.
Could I amend my deed so that foreign persons are involved in some way, but not to the extent which triggers the relevant laws?
Yes.
Again, this depends on the relevant law which is being considered.
For example, some jurisdictions only assess whether a foreign person can receive capital distributions from the trust. So the trust deed could
be amended so as to enable income distributions to all beneficiaries including foreign beneficiaries, and exclude any foreign person from
receiving distributions of capital from the trust estate. Please contact our HelpDesk team if you are interested in this arrangement and
they will put you in touch with the legal team at Maddocks.
Does the Cleardocs Trust Deed allow me to remove or change the Appointor of the trust after the trust is established?
If an Appointor is named under the Discretionary Trust, the Appointor's role is to replace the Trustee if needs be. Although you have a choice as to whether an appointor will be appointed to the Discretionary Trust, you should consider the benefit of having an appointor to cater for situations such as the death or insolvency of a trustee.
The Cleardocs Trust Deed will allow an initial Appointor to appoint a second Appointor - and the initial Appointor will then always have the power to remove the second Appointor. Importantly, although the Cleardocs Trust Deed does have provisions relating to who becomes appointor after, say, the initial Appointor dies, the deed does not include a mechanism for removing the initial Appointor. If you wish to remove a primary Appointor from the trust you should seek legal advice on this point - generally speaking, this can only be done with the initial Appointor's consent.
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