Will and Kate are an elderly couple you have been working with for only a little over 12 months. You have done four jobs for them already, and so thrilled when Will calls you again in the space of 2 weeks to say he wanted to discuss his new business idea.

Will tells you that he and an ex-army mate are going to set up a drone delivery service, and that he will become the director of the new company which is going to run the operation.

Will and Kate are concerned about Will’s personal liability and prefer for Will to retire as trustee of the WilKat Trust. You are aware of their trust; it owns an apartment in Griffith, Will, Kate and Will’s brother Tom are the trustees, and the beneficiaries are Will, Kate, their children and Tom.

Will and Kate contemplated appointing a corporate trustee but didn’t want to overcomplicate things, and as usual are in a rush to get things done. You prepare a deed to retire Will as trustee and transfer the apartment from Will, to Kate and Tom (as continuing trustees). Will tells you he discussed CGT with his accountant this morning, and as there is no change in beneficial ownership you tell Will that there is $50 nominal duty payable on the transfer.

The documents are signed, and Will, whilst hunting for his cheque book (remember those!?) in his backpack pulls out a document the accountant gave to him. It is dated 2010 and states that the trustees of the family trust declare that the property in Cobar registered in the name of Tom is held in trust by him for the WilKat Trust.

You don’t know anything about the property in Cobar but Will tells you that their previous solicitor had made an error when the property was purchased, which the accountant picked up a year later and then prepared the document to note the true ownership. You warn Will that this document could be construed as a declaration of trust, and if so, will be liable for duty as it is not stamped. After a brief discussion of the potential liability and risk of non-disclosure, Will agrees it should be disclosed to Revenue NSW. You lodge the deed retiring Will for stamping at the same time.

A Sting Avoided

You receive a letter from Revenue NSW a week later requesting a valuation for the Cobar property as at 2010 (the date of the declaration) and the interest payable between then and now. You are glad that you had warned Will about the liability and you tell him that Revenue NSW confirmed the document is a declaration of trust, as you had suspected. No penalty interest was imposed due to the disclosure. Will and Kate are ok with this.

The Sting

You receive a second letter from Revenue NSW requesting a valuation of the Griffith apartment and payment of ad valorem duty, referring to section 54 of the Duties Act 1997. You are aware that this section contains the provisions for change in trustees and think it must be an error as you bring it up on your screen. You read the part most relevant being subsection (3) which imposes a duty of $50 on a transfer of dutiable property on, amongst other things, the retirement of a trustee if the Chief Commissioner is satisfied that “(a) none of the continuing trustees remaining after the retirement of a trustee is or can become a beneficiary under the trust..”

You know all too well that if the Chief Commissioner is not satisfied that is the case, duty is payable as if it was a transfer to a beneficiary. You look, very hopefully, at section 57 of the Duties Act which imposes a duty of $50 on such a transfer, but you instantly realise that only applies if the property was in the trust when it was first declared and of course the only property in the trust when it was declared was the initial $10. You didn’t sleep a wink that night thinking about what that Griffith apartment is worth now.

Will and Kate will not be ok with this.

Take away points:

  • Be very careful in preparing a deed to remove or appoint an additional trustee
  • Remember a declaration of trustmeans any declaration…. that any identified property… is.. held in trust for the person…although the beneficial owner…  may not have… assented to the declaration.
  • You don’t need to use the word declaration for it to be considered a declaration