Changing trustees of trusts – simple in theory, not in practice

There will be times where a client is advised (possibly by yourself) to consider changing the trustee of their trust. Such a recommendation might be made for asset protection, structuring considerations or as a cost saving measure.

Transactions to change the trustee of a trust may be thought of as standard and procedural. Often these transactions can be relatively inexpensive for clients. The ATO has further suggested that a change of trustee (provided it is made under a power in the trust deed) should not be considered to cause a resettlement of a trust.

However, while it is easy to put together a document that simply states the resignation of one trustee and the appointment of another, changing a trust can be a complicated process and not following the correct procedure may mean the changes are invalid or may cause you to incur additional tax.

Who is being appointed or left to act as trustee? 

The relevant trust legislation in a majority of States contain some limitations on discharging a retiring trustee where there will not be a company or two or more individuals left as trustee after a change, unless the trust deed has specific terms allowing for the contrary. There may be situations where the deed should be amended first before a change of trustee is made. A recent UK case held that a change of trustee made years ago in the 1980s was ineffective, which resulted in significant adverse tax consequences.

What needs to be complied with? 

Under State duty legislation, there is no transfer duty imposed on transactions which are for the sole purpose of giving effect to a change of trustee provided that certain requirements are met. However, even where no transfer duty applies, it is important for your clients to ensure that their retirement and/ or appointment deeds are correctly assessed with a duty notation stamped on them (if required). For example, in Qld, if the deeds are not properly stamped, then the Titles Office will issue a requisition for any transfers or transactions for land which submit an unstamped change of trustee deed.

Banks and other institutions may also reject the submission of unstamped deeds. Also, bear in mind that all the states have different legislation in this area. So, the rules might be different if your client conducts business or owns investments outside Queensland.

What can I do? 

The starting point for any change of trusteeship is always the terms of the trust deed. The deed may require the change of trustee power to be exercised by a specific entity such as the existing trustee, members, founder of the trust, appointor or principal employer.

When you propose to vary a term or power under the trust deed, you need to check the provisions of the deed to ascertain:

  • does the power of variation extend to all provisions in the deed or only limited provisions;
  • who has the power to make the change;
  • what are the procedures for variation;
  • is it necessary to obtain the consent of any party; and
  • are there specific restrictions on the power of variation.

A failure to comply with procedural and legislative requirements may result in a purported variation being ineffective.

Changes of trustee are warranted in many situations; however, a wrong move gives rise to delays and costs that can have devastating consequences.

Disclaimer

This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

Queries

For further information please contact the author Paul Agnew, Partner (Brisbane), Glenn Hughes, Partner (Sydney), John Hutchings, Chairman (Melbourne), or any member of our Corporate & Commercial team.

The Author

Paul Agnew

PARTNER, BRISBANE