It has long been the case that a Family Trust cannot deal with a blended family but at Abbott and Mourly Lawyers we have been building successful blended family trust vehicles in line with ATO rulings that we have. Consider the following trust splitting example which applies for a family as it moves between generations but can also be used for blended families. If is it set up the AM Lawyers way then safety, security and harmony may come from a potential fighting family without CGT and stamp duty consequences - provide you get the right advice of course!!!
ATO Determination: Separating the control of some of the assets of an existing trust that does not result in creation of a new trust
The Kingdom Family Trust is a discretionary trust settled in 1970 for the benefit of Ian King and his family members – his wife Maria and his children Katarina and Laura. Ian King is the current appointor of the Kingdom Family Trust.
The trustee of the Kingdom Family Trust is Emperor Pty Ltd (Emperor), a company jointly owned by Ian and Maria. Together with their daughters, Ian and Maria are also the directors of Emperor.
The Kingdom Family Trust is in the business of property development and the operation of retirement villages. Ian is 70 years old and wishes to reduce his involvement in the family’s business activities. Ian and Maria King decide that now is an appropriate time for greater responsibility
for the administration of the Kingdom Family Trust to be placed on Laura who is currently
taking increased responsibility for the property development business. To facilitate the desired succession planning goal, the trust deed is amended to:
(a) allow for the appointment of additional trustees in respect of some of the assets of the trust fund
(b) allow for separate appointors in respect of the different parts of the trust fund
(c) provide that in making a determination about how to distribute the net income of the trust fund for a particular accounting period, each trustee of any separate part/s of the trust fund must take into account the losses incurred by the other parts of the trust fund and expenses of the trust as a
(d) require all trustees to act together in respect of decisions which one trustee reasonably believes requires agreement of all trustees including but not limited to
(i) selection of an accountant for preparation of the trust tax return
(ii) incurring joint expenses
(iii) amending the trust deed
(iv) determining an earlier vesting date for the trust, and
(e) give each trustee recourse to all of the trust assets where the assets held by that trustee are insufficient to fully satisfy its right to be indemnified.
A Deed of Appointment was subsequently executed appointing Rainbow Pty Ltd (Rainbow) as an additional trustee over all assets relating to the property development business of the Kingdom Family Trust. Laura and Ian King are the directors and shareholders of Rainbow. Emperor is removed as trustee over all assets relating to the property development business.
The identity of those who control Emperor remains unchanged.
Laura is appointed as appointor in respect of that part of the trust fund that Rainbow holds as trustee and Ian King resigns from that role. Ian King remains appointor in respect of the remainder of the trust fund (being the assets Emperor continues to hold).
Both parts of the trust fund continue to be governed by the terms of the original trust deed as amended. The range of potential beneficiaries entitled to benefit from the trust as a whole
does not change. Each trustee keeps separate accounts in respect of the assets they hold, but the
results are consolidated for the entire trust fund and a single tax return is prepared for the
Kingdom Family Trust as a whole.
Considering all the elements of the arrangement, it cannot be concluded that the assets transferred to Rainbow have been subjected to new personal obligations and new rights annexed to that property. The Kingdom Family Trust continues as one trust, albeit with two trustees, each separate trustee assuming primary responsibility in respect of a specified portion of the trust fund. The preconditions to subsection 104-55(1) are not satisfied and implementation of the arrangement does not cause CGT event E1 to happen.
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