When determining whether a trust has been resettled or redeclared, the key issue is whether the variation is so substantial that the trust is fundamentally changed. The resettlement or redeclaration of a trust can have adverse transfer duty and tax implications, so it is important to be aware what triggers this and how to avoid it.
The Courts have determined that a trust is resettled or redeclared when an amendment causes a lack of continuum of the trust. A lack of continuum may arise where there is a substantial variation to the constitution, property and/or membership of the trust. The Commissioner of Taxation has echoed this and confirmed that if there is a fundamental change to the trust relationship or a change in the essential nature and character of the trust relationship, this can result in a resettlement or redeclaration.
To avoid a resettlement or redeclaration of trust, the amendment must be made in accordance with the powers conferred by the Trust Deed by the authorised party, and continuity of the property that is the subject of the trust obligation must be established.
It is important when preparing a Trust Deed to include a broad variation power which contemplates any expected changes to the trust. Trustees should be cautious when amendments are proposed that the amendments do not cause trust assets to be held on a separate charter of rights and obligations, or there could be a risk of resettlement or redeclaration.
If you require any assistance in preparing or amending a Trust Deed, it is important you contact a Solicitor.
