In my last article, I examined what the then proposed and imminent legislative amendments as outlined in State Revenue Further Amendment Bill 2019 (NSW) (“the 2019 Bill”) would mean for existing discretionary trusts, and in particular, existing testamentary discretionary trusts and also any testamentary trusts arising within 2 years of the date of the proposed legislation being enacted (subject to certain conditions being met).
Where existing “inter-vivos” discretionary trusts were concerned, many people took the prudent approach being recommended by practitioners when the proposed legislation first came to light, which was to take advantage of the safe harbour available and amend the terms of their discretionary trust deeds to irrevocably exclude “foreign persons” from being beneficiaries by 31 December 2019.
Knowing how best to deal with amending testamentary discretionary trusts though, was a different proposition. We knew that existing testamentary trusts (ie, those that had already been established following the death of a person whose Will created the trusts) were not caught by the proposed legislation. Nor would the proposed legislation affect testamentary trusts established within 2 years of the 2019 Bill being enacted. The issue was that clients with existing Wills incorporating testamentary discretionary trusts were sitting ducks, unless of course they died, and the trusts created under their Wills were established within the 2 year period. That’s bad luck whichever way you look at it!
Estate planners therefore knew that if and when the 2019 Bill was enacted, they had the huge task ahead of them of identifying which living Willmaker clients had Wills incorporating testamentary discretionary trusts, contacting those clients and then having the conversation about the importance of revisiting their Wills to exclude foreign beneficiaries.
Luckily the objectors’ voices have been heard and we now have a more accommodating Bill, State Revenue Further Amendment Bill 2020 (NSW) (“the 2020 Bill”) awaiting Royal assent.
Pursuant to the 2020 Bill, the trustee of an “Australian testamentary trust” will not be regarded as a foreign trustee and avoid the imposition of surcharge purchaser duty and surcharge land tax (in respect of the 2017 land tax year and subsequent years) even if the terms of the trust do not prevent a foreign person from being a beneficiary of the trust if:
- for a trust arising from a Will or codicil—the Will or codicil was executed on or before 31 December 2020, or
- for a trust arising from the administration of an intestate estate—the deceased died before, or within 2 years after the commencement of the relevant section, or
- for a trust resulting from an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate—the order was made on or before 31 December 2020, or,
- where land tax is concerned, where the liability for land tax is required to be assessed (under clause 9 of Schedule 1A to the Land Tax Management Act 1956) as if the deceased had not died and had continued to use and occupy the land in question as his or her principal place of residence.
The 2020 Bill defines an “Australian testamentary trust” as “a discretionary trust arising from a Will or codicil or the administration of an intestate estate (or as a result of an order of a court varying the application of the provisions of a will or codicil or of the rules governing the distribution of an intestate estate) where the deceased was not a foreign person immediately before his or her death”.
It should be noted that the 31 December 2020 deadline also applies to intervivos trusts, that is, if the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge purchaser duty or surcharge land tax (in respect of the 2017 land tax year and subsequent years), the trustee will be exempt from surcharge purchaser duty and surcharge land tax if the terms of the trust have been amended, before payment of the duty or tax (as the case may be) is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary. If surcharge purchaser duty or surcharge land tax has been paid, the trustee is entitled to a refund of that payment if the terms of the trust have been so amended, before midnight on 31 December 2020.
The timelines prescribed in the 2020 Bill are more realistic and should give practitioners and their clients sufficient time to act to avoid being caught out by the proposed amendments to the Duties Act 1997 & the Land Tax Management Act 1956.
If you require assistance please don’t hesitate to get in touch with a lawyer in Coleman Greig’s Wills and Estates Planning team, who would be more than happy to assist.
