A number of considerations need to be addressed when changing the trustee of a discretionary, unit or hybrid trust. These include the validly of the appointment documentation, if registration of the documentation is required, whether the new trustee can receive distributions and the criteria that must be met to ensure that the trust fund does not incur adverse stamp duty consequences.
1. Appointment documentation
Review of the specific procedures and parties required to change the trustee, as outlined in the trust deed for the trust, is critical to ensure the appointment is effective. If the required parties are not included in the change of trustee documentation, or any specific procedures are not followed, the appointment of the new trustee may be deemed invalid.
The process of removing an outgoing trustee may be specifically relevant, particularly in the case of incapacity, as resignation would not possible in this circumstance. A trustee may also need to be specifically removed if the change is a result of an acrimonious marital breakdown where a trustee may insist on not participating in the change of trustee documentation.
Where resignation is permitted (i.e. for an outgoing trustee that has capacity), there may be substantial notice requirements (for example some deeds require 30 days’ notice) that have to be met in order for the removal to be effective.
Further to this, the actual form of the documentation prepared to change the trustee can be equally important. If permitted by the provisions of the trust deed, the appointment and/or removal of a trustee is best done by way of deed. Where the trust deed provides that an appointment must be done other than by way of deed, such as by notice, it is important that the method of appointment is followed expressly to ensure an effective appointment. In the event that the deed is silent as to the form of appointment, it is prudent to have that appointment be documented in the form of a deed.
2. Registration of the appointment documentation
When considering registration of the change of trustee documentation, the ability for deeds to be registered in the relevant state, the relevant trustee legislation and the provisions of the particular trust deed all need to be considered.
Firstly, in some states and territories, being NSW, WA, SA and the ACT, there is a register for deeds administered by the state/territory. In these states, and particularly when a deed affects land in the state, deeds effecting a change in trusteeship of a trust may be registered.
Whilst in WA and SA the registration of the deed effecting the trustee change is optional, doing so enables the deed to become a public document. As such, where registration of the original trust deed has occurred, it may be beneficial to register the change of trustee also, since the public recording of the document may be relied on by third parties dealing with the trustee. The relevant lodgement form will be required and a fee will be payable.
When registration is compulsory
Whilst registration in WA and SA is optional, NSW and the ACT require the deed changing the trustee to be registered, unless there is a specific provision in the trust deed for the trust that states that registration is not required to effect a change of trustee and that the trust fund will vest in the new trustee on a change of trustee without registration occurring.
This being the case, it is important to examine the provisions of the trust deed for the trust to determine if there is mention of the trust fund vesting in the new trustee without the need to register the change of trustee documentation. In the absence of any such specific provision, the trustee would be bound by the relevant Trustee Act legislation to register the change of trustee documentation for it to be effective if the governing law of the trust is NSW or ACT.
You may be surprised to know that very few trust deeds in the market contain this provision, notwithstanding the clear wording of the relevant NSW and ACT Trustee Acts.
3. Administration of Assets
Trust assets must be held in the name of all trustees as trustees for the trust. If there is a change in trustee, you will therefore be required to change the name on the ownership documents (such as a title deed) for each trust asset and notify all relevant authorities and registries including the ATO.
4. Duty on transfer of assets
To register a change of name for some assets (for land at the relevant state’s land registry office or for shares or units (marketable securities) in the relevant entities register), a transfer will need to be executed and lodged.
In undertaking the transfer the tax consequences also then need to be considered as a change of trustee may cause a dutiable transaction to occur under the relevant state legislation and be liable to transfer duty.
Even though in all jurisdictions there is either an exemption or concession from stamp duty where a transfer is affected due to a change of trustee, it is important to ensure that the exemption/concession applies in the particular circumstance and that if there are any other criteria, these are also fulfilled. Otherwise you risk the possibility of incurring stamp duty at ad valorem rates.
You should also be aware that there may be certain evidentiary requirements to lodge with the relevant state revenue office.
In particular, the concession may not apply where a legal transfer of land or marketable securities takes place in NSW or the ACT where the new trustee or any continuing trustee is a beneficiary of the trust. As such an appropriate exclusion or disclaimer document may need to be drawn up to exclude the trustee from benefiting under the deed.
Conclusion
As you can see, there are many considerations that have to be made when changing the trustee of a Trust to ensure a valid appointment of that trustee, and in many cases, the notation of the change by simple trustee resolution will not be enough to document this change effectively.
Michael Spakman, director, Topdocs
