What are the common pitfalls in discretionary trusts?

In this edition of It depends, special counsel Tom Walrut discusses some of the common pitfalls in discretionary trusts.

Video Transcript

Hi, my name is Tom Walrut, and I’m a special counsel here at CGW. And welcome to this week’s very special edition of It Depends, in the lead up to Adviser Day. So, for today’s it depends, we’ll be talking about some of the common pitfalls in the use of discretionary trusts. And the question always is ‘well what are the common pitfalls for discretionary trust?’ And as always it depends.

What are the common pitfalls in discretionary trusts?

So, what are some of the common pitfalls we see in the use of discretionary trusts? Well, it depends. And it depends on what the trust is used for, what assets the trust owns and commonly what the estate planning and asset protection objectives are for the trust. So, with that, on that note, some of the more common issues we see are, a failure to include appropriate foreign exclusionary clauses for foreign beneficiaries, particularly when the discretionary trust owns New South Wales land. We’ve also got, say, recently announced a two-year ban on foreign residents acquiring property or residential property in Australia. So, making sure that your trusts don’t fall foul of that. We also see at a more practical level, some of the problems with payroll tax, with a number of trusts potentially being grouped with other entities and then becoming jointly and severally liable for payroll tax.

We also have some land holder duty to problems. A lot of people tend to forget that, at least in Queensland and New South Wales, land holdings of discretionary trusts are included in corporate beneficiary land holdings working at landholder duty. So, that’s another common issue that we see. And finally, one of the more annoying ones, we have a tendency to see is people forget in Queensland we’ve got corporate trustee duty. So, if shares are transferred in a corporate trustee, then you potentially have a duty liability deed based on the underlying assets of the trust. But all of these are the fun common pitfalls that we’ll usually see in day-to-day practice. But we’ll be going through them and more at the session, Keeghan Silcock and I will be running on common pitfalls for discretionary trusts and their usage at the Adviser Day.

So, I’m looking forward to seeing you all there. Thanks.