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Resettlement of Trust Deed

What is a trust?

Trusts are legal arrangements or relationships where a person or company (the trustee) holds property and the legal title to that property is for the benefit of someone else (the beneficiary or unit holder): Further details can be found here: https://www.sro.vic.gov.au/duty-and-trusts#:~:text=Trusts%20are%20legal%20arrangements%20where,wording%20of%20the%20trust%20document.

The trust deed outlines how the assets are to be held and how profits are to be distributed to the beneficiaries.

Changing the terms of the trust

The appointer of the trust may want to amend the terms of the trust throughout the existence of the trust.

If the amendment is outside the scope of the trust deed and alters the trust deed, making the trust substantially and fundamentally altered, this will likely result in a trust resettlement.

Resettlement of the trust

If a trust is resettled, the original trust will be terminated and transferred to a new trust.

However, resettlement can result in significant tax and duty consequences, making it undesirable, especially for business owners.

Consequences of resettlement of a trust

When resettlement occurs, the assets are ‘disposed’ and moved to the new trust.

When the asset is disposed of, this will trigger a capital gain to the beneficiaries of the original trust. This means the beneficiaries will have to pay the full amount of the capital gains tax imposed.

Furthermore, when everything is transferred from the original trust to the new trust, any losses in the original trust are lost and can now no longer be used in the new trust.

Additionally, when a trustee is changed or a new one is added, the title of the assets is transferred to them, therefore triggering a requirement to pay transfer duty. 

How to avoid resettlement

To avoid the consequences of a resettlement, ensure the proposed changes are within the scope of the trust deed.

However, it may not be so straightforward, so contact us for legal advice before you make amendments to your trust to avoid any resettlement consequences.

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