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Testamentary discretionary trusts – Foreign person – NSW

10 December 2019 by By Lawyers

Testamentary discretionary trusts holding residential property – Surcharge duty and land tax

Where a foreign person acquires or holds residential property, duty and land tax surcharge can apply. Foreign person surcharge duty and land tax can also apply to testamentary discretionary trusts where foreign persons are beneficiaries or potential beneficiaries.

The NSW Commissioner of State Revenue issued a ruling in March 2017 allowing exemption of discretionary trusts from surcharge duty and land tax if the trust deed was amended to exclude foreign beneficiaries within six months of the exemption being granted.

The State Revenue Legislation Further Amendment Bill 2019 is currently before the NSW Parliament. If this Bill is passed, the ability to amend a trust deed to avoid the surcharge will be restricted. Once the Bill passes, the exemption is likely to be removed. The second reading speech for the Bill states: ‘the Government considers that the end of 2019 allows sufficient time for any remaining trustees and their advisers to make necessary changes to trust deeds’.

There is two-year period of grace, from the commencement of the proposed new s 104JA of the Duties Act 1997. During that period, the trustee of a testamentary discretionary trust will not be deemed a foreign person if the deceased was not a foreign person, even if the trust does not prevent a foreign person from being a beneficiary of the trust.

In order to avoid the application of surcharge duty and land tax, the By Lawyers wills creating testamentary discretionary trusts and library of testamentary discretionary trust provisions include a clause titled ‘Foreign beneficiaries’ that prohibits the trustee from making trust distributions to, or otherwise benefiting, a foreign person. The clause must also prohibit an amendment that has the effect of including a beneficiary or potential beneficiary who is a foreign person. Where it is intended for a foreign person to benefit under a testamentary discretionary trust, this clause should be appropriately amended or removed when drafting the will.

It is important to review existing testamentary trust provisions arising under a will and consider whether it is necessary to amend to avoid the application of surcharge duty and land tax.

See the commentary in the Wills (NSW) Guide for further details.

Filed Under: Legal Alerts, New South Wales, Publication Updates, Wills and Estates Tagged With: Duties Act 1997, Foreign beneficiaries, Surcharge duty and land tax, testamentary discretionary trusts

Wills – Testamentary discretionary trusts

31 May 2018 by By Lawyers

The commentary on testamentary discretionary trusts in our Wills publications now has a more in depth discussion of:

  • the benefits of testamentary discretionary trusts;
  • when a testamentary discretionary trust is appropriate;
  • family trust elections.

There are several By Lawyers precedent wills which create testamentary discretionary trusts for individuals and spouses, as well as a library of testamentary discretionary trust clauses. These precedents can be used to establish a single testamentary discretionary trust for all assets and beneficiaries of the estate, or multiple testamentary discretionary trusts for specific beneficiaries. They can also be used to establish additional testamentary discretionary trusts to provide protection for specific assets such as quarantining a family business or to allow for the particular needs of an individual beneficiary due to say drug addiction.

Filed Under: Australian Capital Territory, New South Wales, Northern Territory, Publication Updates, Queensland, South Australia, Tasmania, Victoria, Western Australia, Wills and Estates Tagged With: estate planning, family trusts, income distribution, inter vivos, tax free thresholds, testamentary discretionary trust clauses, testamentary discretionary trusts, Wills

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