Completing Your Discretionary Trust Deed
Discretionary trusts can be a good way to structure your business or you finances. This form of trust allows the trustee to choose what and how much property is distributed to the beneficiaries. A core part of this is the Trust Deed, which outlines all the terms of the trust. Whether you’re the appointer, trustee or have created this document for someone else, here’s what you need to do after completing your Discretionary Trust Deed.
1. Ensure it’s signed by the trustee
As the person who will be distributing the trust property, it’s crucial that the Trustee sign the Trust Deed. At the same time, trustees should familiarise themselves with their obligations and duties as trustees. These include:
- Preserving trust property
- Acting in good faith
- Loyalty to beneficiaries
- Impartiality
- Keeping accurate records and information
You should also ensure that the Trust Deed is witnessed by a third party who is not involved in the trust.
2. Understand terms relating to how the trust can be varied
Trust Deeds contain details of how a trust can be varied. For discretionary trusts, trustees usually have scope to alter the terms of the trust. If you wish to make a more formal change, you will need to execute a Deed of Variation. The Deed of Variation must follow the instructions provided in the Trust Deed. To change the trustee, the deed must be altered. A deed of variation allows you to alter the trust deed. Essentially, this variation allows you to update the necessary section of the trust deed. Therefore, through a deed of variation you may alter the trustee of the discretionary trust.
3. Learn how trust vesting works
Your Trust Deed will outline when your trust is to end (usually 80 years). Known as the vesting date, this involves all the remaining trust property being distributed. Consequentially, it’s good practice to refer to your trust deed regularly, because after the trusts vests, the date cannot be amended. However the benefit of prior amendment is influenced by a few things, including:
- The extended date cannot be more than 80 years after the trust commenced
- The trust deed must permit in its terms extension or ability to vary the date
Depending on the deed, certain tax implications may effect the trust vesting. This includes capital gains tax (CGT) consequences or income tax obligations. Here you can find more details on this with reference to the ATO’s draft tax ruling.
Finally
After completing your Discretionary Trust Deed, you should take care to:
- Ensure it’s signed and witnessed correctly
- Familiarise yourself with rules relating to how the trust can be varied
- Understand the vesting date and which laws apply
If you have further questions around managing your discretionary trust, we recommend that you contact a trusts lawyer for further advice.
