Transfer of property from trustee to beneficiary and asset protection
Depending on your circumstances, an asset protection strategy that uses a family trust, fixed trust or unit trust can help protect investment properties and your estate, and may allow access to a transfer duty exemption or concession when transferring to beneficiaries. In Victoria, the Duties Act 2000 sets out the rules. See Section 36 (fixed trusts), Section 36A (discretionary trusts) and Section 36B (unit trusts). The general requirements include:
- Duty, if any, must have been paid when the property first became subject to the trust.
- The transferee must have been a beneficiary of the trust when the property was acquired and became a trust asset at the relevant time.
- No consideration for the transfer. It must not be part of a sale or other arrangement.
- Exemptions apply to property derived from subdivision or consolidation where it forms the same dutiable property that first became subject to the trust.
See practical guidance from the State Revenue Office: transfers to and from trusts.
Fixed and unit trusts
For fixed and unit trusts a complete duty exemption can apply where:
- The dutiable value of the property is not more than the value of the beneficiary’s or unit holder’s interest in the trust. The exemption applies proportionately.
- The distribution reduces the beneficiary’s or unit holder’s interest in the trust.
Discretionary trusts (family trusts)
For discretionary trusts, the exemption applies to subject beneficiaries even though a distribution to a beneficiary does not extinguish or reduce their interest. Duty exemptions will apply where the subject beneficiary was a beneficiary at the relevant time or became a beneficiary after that time by reason of:
- Becoming a spouse or domestic partner of a beneficiary
- Becoming an adopted child or stepchild, or being a lineal descendant, of a beneficiary
- Becoming an adopted child or stepchild, or being a lineal descendant, of a spouse or domestic partner of a beneficiary
The exemption does not override the trust deed. The trustee must have power under the deed to distribute the property to the subject beneficiary and must comply with the deed’s requirements. Tax issues must also be considered, including capital gains tax and family trust distribution tax. Independent advice from a registered tax agent on the full tax impact is critical.
If you are considering a trustee to beneficiary transfer or need help with asset protection planning, contact Jameson Law on (02) 8806 0866 for tailored advice and document review.
