BY AMANDA TULLY
SNAPSHOT
- Amend trust deeds with caution.
- Understand your client’s structure when preparing their will.
- Best practice is to always involve the accountant.
You are acting for the estate of one of your long-term clients, Lily, who died, leaving behind an estate that includes her family home and several investment properties.
You prepared Lily’s will in February 2025 and it all seemed reasonably straightforward—she left the family home to her eldest daughter, Roxy, while the investment properties were to be divided between her two other children, Pearl and Petal. Lily wanted Roxy to have the family home because Roxy had been living with and caring for her in her later years. The family home was an impressive coastal home with spectacular views of the ocean and Lily told you it was worth around $4 million. She believed the investment properties together were worth around $8 million, so Lily was satisfied her three daughters would essentially end up being treated equally.
Lily still had some old-fashioned views on the world and, despite you encouraging otherwise at the time of drafting the will, she insisted the executors be her nephews, Sam and Rusty.
When drafting Lily’s will you completed searches on the properties she owned and they revealed the family home was owned by her.
However, the accountant has since advised it is owned by Lily as sole trustee for Bob’s Investment Trust—a family discretionary trust set up by Lily’s late husband, Bob, in 1975.
The accountant sends through all the information he has for Bob’s Investment Trust and you see there was a deed of amendment prepared three years ago to extend the vesting date to the new perpetuity period of 80 years from the date of the deed—the prior vesting date was the earliest of:
- 21 years after the death of the last surviving descendant of King George VI who was then alive;
- 50 years from the date of the deed; or
- such earlier date as the trustee may resolve
Bob’s siblings were removed as beneficiaries too.
You also see, on reviewing the deed, that on the death of the sole trustee (Lily), her legal personal representatives (Sam and Rusty as her executors) become the appointors and trustees of the Trust.
None of this is sitting well with you. You have a very bad feeling about it all, so you decide to contact a solicitor, Polly, who specialises in trusts and tax, to give you some advice.
First sting: the amendment to the perpetuity period
“So,” Polly says, “whilst under section 7 of the Perpetuities Act 1984 the new perpetuity period is 80 years, this doesn’t apply to settlements created before 31 October 1984. As this deed was established in 1975, the amendment clause didn’t work. Fifty years from the date of the deed is 1 April 2025. So, because the amendment didn’t work, the deed vested on that date and the owners of the family home are the default beneficiaries—Roxy, Pearl and Petal.”
Oh no,” you reply, “the house is supposed to go to Roxy only, in accordance with Lily’s will!”
“Sorry, Lily’s will isn’t even relevant. She didn’t own the property, the trust did. It has now vested and therefore Sam and Rusty own it on bare trust for Roxy, Pearl and Petal. Whoever prepared the amending deed really stuffed up. Hopefully it wasn’t you?”
You didn’t prepare the amending deed, but you hadn’t thought to investigate Lily’s structure when preparing her will, so perhaps the problem could have been avoided.
Second sting: the foreign surcharges, that old chestnut
“I’m sorry to say, it could be worse than just that though” says Polly. “Oh why?” you moan.
“Well, on reviewing the documents, I did also notice there haven’t been any amendments made to the deed to exclude ‘foreign persons’ and I understand this trust owns a residential property worth $4 million. I’m not sure if they have been paying land tax but they should be, plus the surcharge land tax.”
Polly goes on to remind you that:
- discretionary trusts are treated as foreign persons if the trust deed does not explicitly exclude foreign persons as potential beneficiaries. This applies even if no foreign person has received distributions from the trust; and
- the surcharge land tax is levied at a rate of two per cent on the taxable value of residential land, which is in addition to the standard land tax rates.
Polly’s final words
“Really,” Polly says, “the trust should have been amended to exclude foreign persons when the NSW government gave everyone the chance to! Also, it would have made much more sense to just remove the reference to 50 years from the vesting date clause rather than try and make the period in the Perpetuities Act apply. It would have avoided a lot of problems!”
You are really starting to dislike Polly.
Amanda Tully is a director and business lawyer at JMA Legal.