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Trust Busting (Including Bamford)

Published on 04 Aug 2009 | Took place at Sebel Playford, Adelaide, SA

Tax and asset protection issues with family trusts never seem to end but the value of trusts to our clients is such that we need to maximise their effective use and minimise any problems. It is vital that the tax adviser stays on top of the issues and is aware of the issues causing problems, the possible solutions and the alternatives.

This event covered four current problem areas:

  • choosing the right appointors, directors and shareholders (of corporate trustees)
  • dealing with the limitations of discretionary trusts when the marriage ends
  • restructuring and succession planning without trust cloning
  • trust distribution minutes under the ATO microscope: minimising exposure and achieving desired outcomes.
Note: After this event was scheduled, the Full Federal Court handed down its ground breaking decision of Bamford v FC of T and the decision has called into question many of the established practices in drafting trust distribution minutes. It has also reinforced the principles for properly dealing with net capital gains derived by trusts. The event included a full breakdown of the decision and its practical implications for trusts and their advisers.

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Individual sessions

Protecting discretionary trusts following Richstar, Cummins and Spry

Author(s):  Michael BUTLER This paper considers whether discretionary trusts remain an effective means for protecting assets given the decisions in a number of recent court cases. In particular, it:

  • examines the decisions in Cummins, Richstar, Public Trustee v Smith and Spry
  • discusses the difficulties of an "at risk" individual being the appointor of a discretionary trust
  • reviews the options available to preserve discretionary trusts as asset-protection vehicles
  • considers whether it matters who are the shareholders & directors of the trustee, and the beneficiaries & appointor of the trust.
Materials from this session:

Can’t Clone – what now? Succession planning for trusts

Author(s):  Marc ROMALDI

The division and divestment of control of family discretionary trusts has suffered somewhat with legislative amendments announced to remove the "trust cloning" exemption. In light of these changes, this presentation outlines alternative options for advisers and their clients in implementing succession planning strategies for family discretionary trusts including:

  • trust splitting as a continuing and useful alternative
  • dividing control using the matriarch or patriarch's will
  • other methods of 'dividing' trust assets
  • in specie distributions
  • weighing practical and commercial requirements against tax outcomes.
Materials from this session:

Unscrambling the egg: Current tax and trust issues in family law

Author(s):  Arlene MACDONALD

Note: This paper is almost identical to the paper "Trust Busting" by Arlene Macdonald delivered at the 2009 National Convention held in March 2009.

The High Court's decision in Kennon v Spry in December 2008 affirmed the Family Court's powers to notionally divide family discretionary trust assets between spouses. It also affirmed the Court's power to set aside trustee distributions of capital and income.

This paper summarises this important case and provides an analysis of the majority decisions in order to draw out the following practical implications for tax advisers with unhappily married or recently divorced clients. In addition, the paper briefly looks at what the Family Court does with the tax debts of the spouses. In particular:

  • are assets of certain types of discretionary trusts (eg testamentary trusts or parent's or children's trusts) less likely to be added to the pool for division between the spouses?
  • what are the tax implications for trustees and beneficiaries where the Court sets aside prior year trustee distributions of income and/or capital (as in Kennon v Spry )?
  • possible strategies for clients whose marriage is heading for divorce (or has already gone there).
Materials from this session:

Trust distributions: The practical issues

Author(s):  Peter SLEGERS

The Australian Taxation Office has recently commenced a wide ranging review into trusts with a particular focus on trust distribution minutes. This paper considers the steps that need to be taken by accountants and other tax professionals to minimise any exposures and prepare for audits in this area. Although this is a highly technical and difficult area, this paper focuses on practical solutions required to achieve the desired outcomes.

Topics covered include:

  • tax net income and trust income debate: state of play following Bamford decision
  • "flow through" of franking credits and streaming dividends, capital gains and ordinary income
  • significant individuals under Small Business CGT Concessions: what practically is required?
  • potential traps
  • update on Commissioner's Practice Statement and discount capital gains
  • what to look for in the trust deed and suggested tips for drafting trust distributions minutes.
Materials from this session: