Change of trustee of a unit trust

Price: 

SUPERCentral prepared trust deed - $330
Non-SUPERCentral trust deed - $440

This fixed price service includes legal advice and tailoring.

When changing a trustee of a unit trust it is vital that the correct mechanism for changing the trustee contained in the deed is followed to the letter, as if the change of trustee is invalid, all decisions made by the new trustee will also be invalid, including distributions of income.

If the trust deed does not contain a procedure for changing trustees, the Trustee Act of the local State jurisdiction may need to be relied upon to give effect to the change of trustee.

The eligibility of the incoming trustee is also important. For example, some trust deeds don't allow individual trustees.

For trusts located in New South Wales the impact of section 54 of the Duties Act 1997 (NSW) on changing a trustee must also be considered. Section 54 states that if, after a change of trustee, any of the new or continuing trustees is, or can become, a beneficiary, the transfer of trust property from the old trustee to the new trustee will attract full rates of duty. For example, if Mr and Mrs X are trustees and beneficiaries of a family trust that owns a unit in Sydney, and Mrs X is removed as a trustee and the family accountant is appointed in her place, state duty will be payable on the market value of the unit when it is transferred to Mr X and the accountant as the trustees.

If, on the other hand, the new trustee is a company controlled by Mr X and the family accountant, both of whom are ineligible to be a beneficiary of the trust, only nominal state duty will be payable when the unit is transferred, but only if the ineligibility is embedded in the trust deed. This is critical to avoiding unwanted duty problems.

There can also be taxation consequences associated with changing the trustee of a trust if the trust is one that conducts some form of business or owns income generating property.

Section 268-25 in Schedule 2F of the Income Tax Assessment Act 1936 requires the accounting year to be broken up into various parts if there is a change in control of a trust during the accounting year. The trap that can arise is that income earned by the trust in the first period of the year cannot be offset against expenses incurred in the second period of the accounting year.

Section 268-25 does not apply to trusts that have made a family trust election.

These issues must be carefully consider before changing the trustee of a unit trust.

Please note that we are not tax advisers and if you are in doubt as to the tax consequences for the trust of a change in trustee, you should check with a taxation specialist.

For further information, please call our office on 02 8296 6266