Change of Trustee Discretionary Trust


How to change the trustee of a Discretionary (Family) Trust?

A change of trustee for a Discretionary (Family) Trust that has a Cleardocs deed can be made as follows:

  • Resignation A trustee may resign as trustee of the trust by giving the appointor(s), or trustee(s) as relevant, notice. However, unless there is a remaining trustee, the resignation is only effective when a new trustee has been appointed;
  • Removal If the trust has an appointor(s), then the appointor(s) may remove a trustee at any time by signing a statement to that effect.
  • Appointor's and trustee's powers If the trust has an appointor, then the appointor, or otherwise the trustee, may appoint an additional or replacement trustee at any time by a written statement to that effect.
  • First named beneficiary's powers If the trust has no appointor and no trustee, then the first named beneficiary who is still alive may appoint an additional or replacement trustee at any time by a written statement to that effect.
  • Automatic termination of trustee's appointment Also, a trustee's appointment terminates automatically if any of the following occurs:
    • the trustee is found to be of unsound mind, or the trustee or his or her estate becomes liable to be dealt with in any way under a law dealing with mental health;
    • the trustee becomes bankrupt or makes an arrangement or composition with his or her creditors; or
    • the trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, official manager, or receiver and manager appointed to any part of its assets.

You can read about, and order, the Cleardocs Change of Discretionary (Family) Trust document package here.

Is the Change of Trustee package suitable if any of the trust's trustee(s) have died and are to be replaced?

The Change of Trustee package is not suitable if an individual trustee has died. As a result, you cannot use the Change of Trustee package to appoint a new trustee under these circumstances.

If the trustee who has died is the sole trustee of the trust, then their legal representative usually steps into their shoes and is the trustee until a new trustee is appointed. This situation can present complications — for example, in Queensland the trust assets vest in the public trustee until a validly appointed new trustee notifies the public trustee of their appointment.

Accordingly, if a trustee of the trust you are working on has died then you need legal advice which addresses these issues. Maddocks can provide you with a quote to give you the advice and prepare the relevant documents. Please call us on 1300 307 343 to arrange a quote from Maddocks.

Does the Change of Trustee package allow you to appoint more than one trustee at a time?

Yes, you can use the Change of Trustee package to appoint more than one trustee at a time but only:

  • if they are all individuals; and
  • if after the change the trust will have up to 3 individual trustees.

The trust's deed allows for the trust to have up to three people as trustee or else one company as trustee. Although the law allows other structures, any other structure is likely to complicate administration of the trust.

If you would like any other combination of trustees after the change, then you should consider using a company as the trustee. That way you can have the company controlled (through directorships and shareholdings) by the people you wish to be the trustees. This works more efficiently because the rules about how the company is to make decisions are set out in the company's constitution and in the law.

You can set up the company through Cleardocs — and register the company with ASIC electronically. The whole process takes only 20 minutes or so — and you get the ACN instantly. A company through Cleardocs costs $606.50 (including ASIC fees of $469.00 and GST).

Cleardocs cannot give you any advice about this. The summary here is information only. It is provided by Maddocks.

Can I appoint a company and an individual to act jointly as trustees of the trust?

The Change of Trustee package does not allow for a company to be joint trustee with an individual(s).

The trust's deed allows for the trust to have up to three people as trustee or else one company as trustee. Although the law allows other structures, any other structure is likely to complicate administration of the trust.

If you would like any other combination of trustees after the change, then you should consider using a company as the trustee. That way you can have the company controlled (through directorships and shareholdings) by the people you wish to be the trustees. This works more efficiently because the rules about how the company is to make decisions are set out in the company's constitution and in the law.

You can set up the company through Cleardocs — and register the company with ASIC electronically. The whole process takes only 20 minutes or so — and you get the ACN instantly. A company through Cleardocs costs $606.50 (including ASIC fees of $469.00 and GST).

Cleardocs cannot give you any advice about this. The summary here is information only. It is provided by Maddocks.

What is the maximum number of trustees that can be appointed to act jointly as trustees of the trust?

Under the Change of Trustee package a maximum of three trustees may be appointed as joint trustees of the trust, as long as:

  • they are all individuals; and
  • after the change the trust will have up to 3 individual trustees.

The reason for this cap is to make the updated trust deeds compliant with State and Territory trust law. It's also to make the administration of your trust as simple as possible.

If the trust holds property on which stamp duty may be paid, will the change of trustee give rise to a stamp duty liability?

There are potential stamp duty liability issues after a change of trustee if the trust holds dutiable property in New South Wales or the ACT. (You don't have to worry about assets anywhere else - the law is different.)

Stamp duty will be payable on the transfer of dutiable assets when there is a change of trustee if:

  • the trustee of the trust is not excluded as a beneficiary; and
  • the trust holds dutiable property (for example real estate) that is primarily situated in New South Wales or the ACT.

So, if you are changing the trustee of a trust which holds property in New South Wales or the ACT, then you should seek tax advice on any potential stamp duty liability.

If the change of trustee occurs when the trust does not hold dutiable property, then no exemptions or concessions are necessary as the transfer does not constitute a dutiable transaction.

Does the Change of Trustee deed need to be registered to be effective?

Due to the content of the trust's deed Cleardocs provided when the trust was established, you normally don't need to register the deed through which the change of trustee is made. However, you do need to register the change of a trustee if a court has ordered that the change of trustee be made.

Also you need to arrange for the deed included in the Change of Trustee document package to be kept on the trust's register so that there is a clear record of the change.

The reason you normally don't need to register the change is because the change is made according to the procedure set out in the trust deed that Cleardocs provided when the trust was established. So if you are ever changing the trustee for a trust that does not have a Cleardocs deed, then you need to check the deed, and get legal advice, about whether registration is required. (Just for the record, to use the Cleardocs Change of Trustee document package the trust must have been set up with a Cleardocs deed. If the trust does not have a Cleardocs deed, then you cannot update the deed to a Cleardocs deed. You can read about why here.)

Does the Change of Trustee package allow for a trustee to be removed without their consent?

No. The Change of Trustee document package is not suitable if the appointor(s) intend to remove a trustee without their consent.

To remove a trustee without their consent, you need legal advice and a particular sort of deed. Maddocks can provide you with a quote to give you the advice and prepare the relevant documents. Please call us on 1300 307 343 to arrange a quote from Maddocks.

If my Discretionary Trust Deed is not a Cleardocs deed, then can I update my Deed to a Cleardocs deed to enable the trust to use the Change of Trustee Product?

No, you cannot update a non-Cleardocs Discretionary Trust deed to become a Cleardocs deed. You can read about why here.

So because the trust needs a Cleardocs trust deed to use the Change of Trustee , you won't be able to use that package for that trust.

Why can't a Trust's deed be updated to a Cleardocs deed?

Any change to a trust requires careful consideration to make sure the change will not involve any ending of the trust or creation of a new trust out of the existing trust. These sorts of changes are often called a "resettlement of the trust".

(However, changing the trustee of a Self-Managed Superannuation Fund is a much simpler and less risky activity — which is why Cleardocs provides an online document package "Change of Trustee" for SMSF.)

Why is a resettlement risky?

Any ending of a trust, and any creation of a trust out of an existing trust, can cause trust property to be disposed of and acquired — which has tax and stamp duty implications.

Although changes can be made to trusts they need to be carefully thought through on the basis of sound legal advice.

What are the risky changes?

Many changes to a trust — even though they may not actually create a new trust (and so may be safe) — "raise the question of whether a new trust has been created".

The changes to be careful of include any one or more of the following:

  • changing the terms of the trust — that is, changing the deed;
  • any change in beneficial interests in the trust's property;
  • creating a new class of beneficial interest;
  • altering an existing class of beneficial interest;
  • redefining a beneficiary class;
  • changing the rights or obligations of the trustee;
  • changing the nature, or features, of trust property;
  • adding property which could amount to a new and separate settlement;
  • depleting the trust property;
  • changing the termination date of the trust;
  • changing the trust in a way that is not contemplated by the terms of the original trust;
  • changing the essential nature and purpose of the trust;
  • merging two or more trusts;
  • splitting a trust into two or more trusts.

In any of the above circumstances, the key questions are whether:

  • continuity of the trust estate has been maintained; and
  • the amendments were a valid exercise of the power to amend.

For more information, you can read our ClearLaw article on Taxation Determination TD 2012/21.

Arranging a quote to have a lawyer update the trust's deed?

If you wish to arrange legal advice about changing a trust's deed, then you can contact the Cleardocs helpline on 1300 307 343 to arrange to speak with a lawyer at Maddocks. The firm will give you a quote for the work — which will involve one of the firm's lawyers reviewing the trust's existing deed and (if appropriate) preparing a set of documents for the specific trust. The cost is likely to be more than $1,400 plus GST.