Variation or Resettlement of Trust?

A discretionary family trust has a variety of advantages, one being that it can be a useful vehicle to provide for the minimisation of taxes payable in respect of the trust’s activities and assets.

Most discretionary trusts can be varied by the trustee. However the trustee should be careful to ensure that the variation does not constitute a resettlement of the trust, as a resettlement may give rise to duty being imposed on the value of the trust assets, and furthermore, capital gains tax events may also be triggered.

The current position at law regarding a resettlement of trust is that:

“so long as the variation is made in accordance with a power conferred by the trust deed, and continuity of the property that is the subject of the trust obligation is established, then there will be no resettlement of trust.”

Whether a resettlement has occurred then depends on whether the trust continues, ceases or is replaced by a new trust, i.e., whether the continuity of the trust has been maintained.

Therefore, so long as continuity of the trust’s property, membership (beneficiary) classes and obligations can be established, then various changes made to the trust will not necessarily create a new trust — particularly if the trust deed contemplates these changes.

 If you have any queries regarding matters concerning your family trust, call us on 9422 8111.