When you initially established your discretionary trust, it was likely for a specific purpose, such as asset protection, tax minimisation, or creating a family wealth structure. However, just as technology evolves and mobile phones receive updates, so too do trust deeds.
Updating your trust deed to a modern version can bring numerous benefits. Here are five key reasons why it is essential to consider an update:
1. Establish a Line of Appointors
The Appointor is a critical role within a trust, responsible for changing the trustee and the rules governing the trust. Without a clear line of succession—ideally spanning at least two generations—issues may arise if the Appointor passes away, becomes incapacitated, or faces bankruptcy. Updating your trust deed allows you to establish a line of successors for the Appointor, ensuring continuity and stability.
2. Ensure Successor Directors for Corporate Trustees
For trusts to function effectively, they should have a corporate trustee. Individual trustees expose themselves to personal liability, which could jeopardise family wealth. Additionally, it is vital that the directors of a corporate trustee have successor directors in place. This ensures smooth transitions in case a director becomes unwell, disabled, or faces litigation. Updating your company constitution can facilitate the nomination of successor directors, providing peace of mind.
3. Protect Your Trust Assets Within the Family
Many existing trust structures do not adequately protect bloodline beneficiaries. Modern discretionary trust deeds can provide enhanced security, ensuring that your children’s de facto partners cannot access trust assets in the event of a separation. By updating your trust deed, you can safeguard your family’s wealth for future generations.
4. Streamline Administration and Ease of Use
Each year, trustees are required to prepare detailed trust distribution resolutions that outline how income is allocated among beneficiaries. Failing to distribute income correctly can result in a substantial tax liability of up to 47%. A modern deed linked to corresponding trust distribution resolutions simplifies this process, making it more efficient and reducing the risk of costly tax penalties.
5. Stay informed about recent changes
Recent legislation has introduced a 2% land tax surcharge on property held in discretionary trusts that do not specifically exclude foreign beneficiaries. Additionally, new accounting standards require expensive “general purpose financial statements” from 1 July 2021. An upgraded discretionary trust deed can address these issues and help you avoid unnecessary costs.
Next Steps
Updating your trust deed involves several important steps, including reviewing existing deeds, collaborating with legal professionals to prepare necessary variations, and ensuring that updated deeds are signed correctly.
At Rubiix Business Accountants, we understand the complexities of trust deeds and are here to help you navigate this process. We recommend taking action to ensure that your family succession, asset protection, and trust estate planning strategies are robust and up to date.
If you have any questions about updating your trust deed or would like to discuss the next steps, please feel free to reach out. We look forward to assisting you in better protecting your family’s wealth.
