If you are thinking about implementing modifications to your existing trust, it is important to consider whether such changes could result in the requirement for resettlement of the trust. When a resettlement happens the original trust is said to have come to an end, and is replaced by the new trust. This means the original trust is deemed to have sold all of the assets to the new trust for their market value on the day of resettlement. As a result, the resettlement of a trust may also carry various tax implications for the trustee including capital gains tax, an inability to recoup tax loss (revenue or capital) or stamp duty.
For a resettlement to occur there must be a ‘fundamental change’ in the nature and character of the trust relationship. This will depend on the nature and extent of the change. Adjustments likely to result in the creation of a new trust are:
• changing the beneficial interest in trust property,
• adding a new class of beneficiaries or type of beneficiary,
• redefining a class of beneficiaries,
• changing terms of the trust or the rights or obligations of the trustee,
• changing the termination date of the trust (vesting date), and
• changing the trust in ways that are not contemplated by the original trust deed.
It is important to note that these changes will not always cause a problem, however it is necessary that all consequences are cautiously considered before any changes are made. In many cases, it may be practical to obtain a private binding ruling from the Australian Taxation Office before making changes to a trust deed.
If you have any questions about amending your trust or a potential trust resettlement, contact The Quinn Group today on 1300 QUINNS (784 667) or on +61 2 9223 9166, or submit an online enquiry.