The implications of the State Revenue Further Amendment Bill 2019 (NSW) on testamentary discretionary trusts

Rosemary Carreras

Estate Planners will need to give careful consideration as to how to best handle the impact of the proposed amendments to the Duties Act 1997 & the Land Tax Management Act 1956 on their testamentary trust wills and deceased estates practice.

The clear implication is that once the State Revenue Further Amendment Bill 2019 (NSW) becomes law, unless the terms of the trust (ie, the terms of the Will incorporating the testamentary discretionary trust and for “inter vivos trusts”, the terms of the trust deed) irrevocably exclude "foreign persons" from being beneficiaries, all trustees of discretionary trusts, whether testamentary or “inter-vivos”, will be deemed to be "foreign persons" and therefore liable to:

There is an exemption though for existing testamentary discretionary trusts and those arising within 2 years of the law coming into effect provided that the deceased was not a "foreign person" at the time of their death even where “foreign persons” are not irrevocably excluded from the class of discretionary beneficiaries.

Unlike testamentary discretionary trusts which exist prior to the new law being passed, existing inter vivos trusts won’t be grandfathered but there is a limited safe harbour in that the new law won’t apply to existing inter vivos trusts if the terms of the trust deed have the required amendments made prior to 31 December 2019.

Clients have a limited time to structure their Wills to irrevocably exclude “foreign persons” from being beneficiaries of any discretionary trusts arising under a Will but what about those clients who do want foreign persons to be in the discretionary class of beneficiaries, particularly where it is not intended or not a certainty that the trust in question will hold residential land?

My view is that we need to consider each client’s circumstances and their objectives very carefully and on a case by case basis. Whilst many clients will want and benefit from an irrevocable exclusion of “‘foreign persons” as beneficiaries in order to avoid the proposed surcharge and annual foreign surcharge land tax, we need to be careful about taking a “one- size fits all” approach and mark put an irrevocable clause in place.

With the impending changes to surcharge duty and land tax, clients with Wills incorporating testamentary trusts should consider amendments prior to 31 December 2019 and definitely no later than the date which is 2 years from when the new law comes into effect. It is particularly important for those clients where capacity might be an issue not to delay in acting as the opportunity to amend may be missed.

If you require assistance please don’t hesitate to get in touch with Coleman Greig’s Wills and Estates Planning team.