Update Family Trust’s Trustee

Update the trustee of your Family Trust

In this Deed of Variation, you are cleaning up who the Trustees are in your Trust. You are changing the Trustees to suit your needs.

1. A Trustee may be dead or retiring: ‘leaving‘
2. A Trustee may decide to remain as a  Trustee. The Trustee continues to be a Trustee: ‘remaining‘
3. A Trustee may be coming on as a new Trustee: ‘new‘

For example, change the trustee of your Family Trust:

Mum wants to stop being the trustee of her Family Trust

Mum and Dad met with their adviser to discuss asset protection. Their adviser explains that there is a risk in being a Trustee of a trust. If the trust goes insolvent then the Trustee or Trustees may be liable for the debts of the trust.

Mum and Dad already follow the ‘mother of substance and man of straw’ asset protection strategy. Mum has all the assets (family home, investment properties) in her name. Dad has no assets in his name. (Commonly, doctors, financial advisers, lawyers, engineers, accountants etc…, as they give advice, rarely have assets in their own name.) So it makes sense to remove Mum as a Trustee of this trust. In that instance:

1. Trustee leaving: Mum
2. Trustee remaining: Dad
3. Trustee new: leave blank and answer ‘No’

Dad wants to stop being the trustee of his Family Trust – as the Family Trust is now running a business

Dad is the sole trustee of his Family Trust. He operates a property construction business through the trust. It (like most businesses) has a high risk of going insolvent. If the Family Trust goes insolvent the Trustee often goes bankrupt as well. Trustees often go down with the sinking ship.

Therefore, Dad decides to resign as the Trustee of the trust. Instead, he puts a company in as the Trustee. (This is called a ‘corporate trustee’.) In that instance:

1. Trustee leaving: Dad
2. Trustee remaining: leave blank and press ‘No’
3. Trust new: Company as trustee of a Family Trust

Dad, as the trustee of his Family Trust, dies

Mum and Dad operate a Family Trust. It just holds shares. It is, therefore, at no risk of going insolvent. There are no asset protection issues with this trust. Mum and Dad remain the Trustees. Sadly, Dad now dies. Mum is happy to remain as the sole Trustee. In that instance:

1. Trustee leaving: dead Dad
2. Trustee remaining: Mum
3. Trustee new: Trustee: leave blank and answer ‘No’

Mum and Dad, as the trustees of their Family Trust, both die

Mum and Dad are killed in an aeroplane crash. Their three children now control the Trust as the backup Appointors. The children do not want to be trustees, themselves. Instead, they build a new company to be the corporate trustee of the family trust. In that instance:

1. Trustee leaving: Dad and Mum
2. Trustee remaining: leave blank and press ‘No’
3. Trustee new: Company

Replace the trustee of your Family Trust when:

1. Trustee retires
2. Appointors sack a Trustees
3. Go from a corporate Trustee to a human trustee
4. Go from human to a corporate Trustee (company as trustee)
5. Want a single Trustee only
6. Trustee dead, gone bankrupt or insolvent

How many trustees should my Family Trust have?

From an asset protection point of view, one Trustee is best. The Trustee is an ‘at risk’ person. What happens if the Family Trust goes insolvent? The Trustee often goes down with the Family Trust.

Further, for added asset protection make the new Trustee of your Discretionary Trust a company. You can build a Corporate Trustee company for a Family Trust here.

Any stamp duty or CGT to change a trustee of a Family Trust?

Does your Family Trust own bank accounts, shares and real estate? Transfer these from the old to the new Trustee. For the transfer of land, you need to get the transfer ‘stamped’ before you can lodge it at the titles office. There is generally no stamp duty (State law) or Capital Gains Tax (Federal law). This is when transfer assets from one trustee to another. This is especially true if you use our Deed. However, NSW and ACT may apply stamp duty if you are not careful. See here. This is on the transfer of real estate from the old trustee to the new trustee.

Intellectual Property which is assigned to the Trust, still belongs to the trust. Just because you change the (puppet) trustee of the Family Trust does not change the beneficial ownership. You may, however, need to update the legal owner of the IP. But you need to speak to an IP lawyer. We do not practice in that area of law.

Victorian Stamp Duty when you update a trustee of a Family Trust?

We do not give advice on stamp duty. This information is only general advice. Under Section 33(2) Duties Act 2000 (Victoria), no stamp duty is charged to a:

• special trustee (i.e. Special Purpose Company, such as a Self-Managed Super Fund update trustee);
• or new trustee of a Family Trust or a Unit Trust

But you have to jump some hurdles to get out of the stamp duty. See section 33(3) and s33(5) Duties Act 2000 (Vic). Stamp duty is charged.  This is unless the Victorian Commissioner of State Revenue of Victoria is satisfied that:

• none of the continuing trustees remaining after the retirement of the old trustee are beneficiaries under the family trust, and
• the new trustee is not a beneficiary under the family trust, and
• this is not a scheme to change the beneficial ownership of the assets

What if you fail on one of the above? What if all three are not satisfied? Then the change of a trustee is chargeable with stamp duty section 33(4) Duties Act 2000 (Vic).

NSW Stamp Duty when you change the trustee of a Family Trust?

See here NSW transfer (stamp) duty on the change of a trustee of a Family Trust.

CGT on a change of a Family Trust trustee

We do not give advice on this. You need to get your own advice. However, Capital Gains Tax (CGT) is not generally payable in Australia for updating a Family Trust Trustee.

‘Register’ the Deed of Variation to change the trustee of your Family Trust?

An advantage of Family Trusts over companies is that Family Trusts are mostly unregulated. Companies are over-regulated. You don’t need to lodge your Family Trust or any Deeds of Variation anywhere. However, you do keep in safe custody and with your accountant a complete set of the originals. This is for both the Family Trust Deed and all Deeds of Variation.

Have a look at the Sample document and there are many training videos and hints to help you as you build the Family Trust update of the Trustee.

Telephone us as you build the Deed of Variation to Update the trustee of your Family Trust. We can help you answer the questions to change the trustees of your Family Trust.

Do you update a trustee of a Family Trust via a “Deed” or a “Minute”?

Sometimes a Family Trust Deed is amended via a Minute. That does not work.

Also, updating a trustee of a Family Trust via a Minute does not work.

Look at Advanced Holdings Pty Limited as trustee for The Demian Trust v FCT [2020] FCA 1479.

This shows how important it is to have a legally prepared Deed to update a trustee of a Family Trust.

In Advance Holdings there is a Minute of a ‘Notice of Removal of Trustee’. It is signed by a director of the trustee company. But it was merely a minute. It was not a deed. It is also signed in the director’s personal capacity. Not as a director. The Court declared the Minute to remove the Family Trust trustee invalid.

The failed ‘Deed of Retirement and Appointment of Trustee’ minute refers to a previous minute.

The court states that the Minute and previous Minute is ineffective in removing the Trustee from the Family Trust.

The Appeal: Advanced Holdings Pty Limited atf The Demian Trust v FCT [2021] FCAFC 135.

As a general rule, a court enforces an objective intention. This is where the words of an instrument show that intent. However, the court cannot give effect to any intention which is not expressed or plainly implied in the language of the document. Minutes are not Deeds. Minutes merely record what a Deed has done. Minutes sadly produce ‘gratuitous, groundless, fanciful implications’. Seel also Fell v Fell [1922] HCA 55).

• A Family Trust is created via a Deed. It should be updated by a Deed.
• A change of a trustee in a Family Trust should be updated via a Deed of Variation to Change a Trustee.

Changing from mum and dad to a corporate trustee of the Family Trust

Q: The Legal Consolidated company is intended to become the Trustee for an existing Discretionary Family Trust.

The Family Trust operates under a registered business name.  The Family Trust sells products and services. It has an ABN and TFN and two Individuals as Trustees.

A: It is an asset protection disaster to have two humans as trustees of a trading Family Trust. All trading vehicles and professionals are high risk of insolvency. You should have had only one human at risk. And it is better to have no humans. You moving to a company as your trustee is long overdue.

Updating the trustees of the Family Trust is done by building this document. (You may wish to, instead, upgrade the Family Trust deed as well.) It takes about 14 minutes to build this Deed of Variation. Once it is signed it changes the trustee immediately. 

However, you will need to now transfer all the assets out of the old trustee (mum and dad, in your case) into the name of your new company.

It is the Family Trust that is doing the business. Not the trustee of the Family Trust. A corporate trustee of the Family Trust usually has no ABN or TFN. It does not do tax returns. The corporate trustee does not trade in its own name. The corporate trustee owns no assets beneficially.

The Family Trust trades. The Family Trust owns the assets.

Instead, the Family Trust has the ABN, TFN and is registered for GST.

A change in a trustee of a Family Trust does not alter this.

How does the new trustee sign on behalf of the Family Trust?

For humans:

• Dad Full Name as trustee of the Smith Family Trust ABN 2838383838382
• Dad Full Name atf the Smith Family Trust ABN 2838383838382

For a company:

• XYZ as trustee for the Smith Family Trust ABN 2838383838382
• XYZ atf the Smith Family Trust ABN 2838383838382

Who contracts with the client? The Trustee or the Family Trust?

Q: We are going to assign Intellectual Property to a client. Who is the assignor? Is it the Corporate Trustee or the trust?

A: It is always the trust. However, the trust operates through a trustee. The trustee is either a company (Corporate Trustee) or a human (Human Trustee). So it is either:

• Coopy Pty Ltd atf the Smith Family Trust; or
• John Smith atf the Smith Family Trust

In years to come, if you change the trustee of your family trust again, then it is just the new trustee ‘as trustee for’ the Smith Family Trust.

See also