What the changes are
There are two primary changes that are on the books for trust law.
First, there is the potential for extensions to perpetuity laws. At the moment, when you first set up a family trust, it has a time limit: 80 years. After that time is up, you need to wind up the trust and distribute the assets.
At the moment, when you first set up a family trust, it has a time limit: 80 years.
However, there are a lot of people who would prefer their trusts to keep going after this time limit. As such, draft legislation suggests to extend it to 125 years.
Second, there is the potential for changes to the rights of beneficiaries in regards to information about the trust. Should the new laws pass, most beneficiaries of the trust will have the legal right to financial reports on the state of the family trust—something which is not enshrined in law currently.
How these changes could affect you
The extensions will certainly affect the way that tax interacts with your trust: most people have made a succession plan assuming that 80 years is the absolute time limit. Should the extensions go through, there will be a lot of people who will need to take another look at their strategies to ensure their plans are still beneficial for a longer trust lifetime.
There will be a lot of people who will need to take another look at their strategies to ensure their plans are still beneficial.
The information rights are a more rapidly approaching issue. If you are a trustee, you may now need to deal with additional administration time and costs as people start requesting financial information. Perhaps most significant, however, is the fact that people will be able to get information on the way that distributions on a family trust have been divided: an easy opportunity for contentions to arise over why Uncle Mark is getting so much more than Cousin Charlotte, for example.
You could even end up dealing with litigation if you are particularly unlucky.
What to do about the changes
Good news for some, bad news for others, but this new legislation should be a wake up call for anybody with a family trust. If you want to be ahead of the curve, there are a few simple steps you can take:
- Document your trust actions carefully if you don’t already. With the potential of financial requests from your beneficiaries, and a legal requirement to fulfil them, you need to ensure you have the paperwork in hand—and accurate paperwork at that.
- Review your succession planning. Extending the lifetime of a family trust by almost 50 per cent may have some significant advantages, but will also require significant succession planning adjustments. Talk to your accountant to ensure you aren’t missing out if this legislation goes through.
- Take another look at your trust in general. Significant adjustments in trust law of any description should prompt a review of your trust structure in general with your accountant. There may be some additional advantages you can utilise to improve your tax structure, reduce your risk profile or otherwise improve your family’s financial situation.
While these new laws may be only in the early stages, there is potential for significant disruption. Make sure you’re making the most of your trust structure by getting in touch with one of the team at Bellingham Wallace.