Requirement for trust reviews following Bamford

The High Court decision in Bamford clarified a number of issues in relation to how income can be defined in a trust deed and whether provisions giving the trustee a discretion to adopt different concept of income are effective.

Many trust deeds will need to be amended to ensure clients can take advantage of the principles clarified by Bamford.

The Commissioner has also issued a Decision Impact Statement (DIS) and Practice Statement (PS  LA 2010/1) in which he has accepted the basic principles outlined in Bamford but has highlighted a number of “unresolved” issues.

Any review of trust deeds should also consider these “unresolved” issues.

Cooper Grace Ward is offering a service where we will review (and amend as necessary) client trust deeds for a fixed fee of $550 (inclusive of GST).

In our trust review process we consider a wide range of issues including the following:

• We will ensure the trust deed has a definition of trust income that allows the inclusion of capital gains and also ensure the trustee has the discretion to adopt a different concept of income to provide maximum flexibility.
• Our income definition excludes “notional amounts” such as franking credits as it is not possible for a beneficiary to be presently entitled to these notional amounts. This is an issue highlighted by the Commissioner in the DIS.
• We insert provisions to give the trustee a discretion to apply outgoings against income or capital and make distributions out of gross income (which may allow distributions out of gross income to preserve franking credits etc).
• We will remove any requirements that the trustee must resolve to distribute income or determine what concept of income applies by 30 June in any year. The Commissioner has indicated that, where the deed stipulates that income distributions must be made by 30 June, he will insist on strict compliance.
• We also review the trustee powers and update these where required – to reflect current requirements of financiers.

When reviewing the deeds we also consider whether there is a risk that any amendments might trigger a resettlement of the trust.

Download our Review of Trust Deeds – Post Bamford article that outlines in more detail our views in relation to some of the more important trust review issues.

If you would like more information about our trust review service please contact a member of our team on 07 3231 2444.