If care is not taken in ensuring that the change is done with an understanding of everything that needs to be managed in putting the change in place:
- the change may not be effective at all, meaning that any purported trustee resolutions after the change are of no effect, which means future trustee decisions will be of no effect, including those about income and capital distribution;
- difficulty will arise in some jurisdictions in registering changes of ownership of assets;
- unwanted taxation outcomes can result;
- unwanted stamp duty outcomes can result, particularly in NSW;
- default under bank loan and security transactions can r
- default under contractual arrangements can result.
How to make a change of trustee – where do you start?
The first thing to do in changing the trustee of a trust is to read and follow the rules in the deed for changing the trustee.
So get copies of the trust deed setting up the trust, amendments to it and any documents recording a prior change of trustee and read them.
Make sure that all these documents are effective, otherwise what you are now doing may not be effective.
In particular, look not only at the change of trustee provisions but also other provisions in the trust deed that may set out rules for:
- the making of decisions by the trustee;
- consent processes that must be followed in making the change of trustee (such as appointor and guardian provisions).
Do you need to use a deed to change a trustee?
The rules of the trust deed will tell you whether you need to use a deed or not to change the trustee of the trust. So the starting point is not that a change of trustee must be done by a deed.
If the trust deed only requires a resolution or something less than a deed to change the trustee, technically there is no need to use a deed to make the change, so long as the process set out in the trust deed is followed.
If the trust deed states that “A trustee may be changed by written resolution” and that is all that it says about it, under section 6 of the NSW Trustee Act 1925, the change of trustee can still be done by a deed, it is just that the deed changing the trustee will need to be registered.
Our normal rule is that no matter what the trust deed requires for a change of trustee, do it by deed. The reasons for this are that:
- Banks cope better with a deed than something less than a deed;
- There is no real cost differential between doing it by registered deed and not doing it by registered deed;
- If there is NSW land in the trust, the document by which the change of trustee is made will need to be registered before the land ownership can be changed on the title of the land at our land titles office, so you may as well do the change of trustee by deed as no matter what, the change of trustee has to be registered;
- If there is NSW dutiable property in the trust, such as land, when that dutiable property is transferred from the old trustee to the new trustee, to avoid full stamp duty at market rates on the transfer of the dutiable property from the old trustee to the new trustee, the new trustee must not be or be able to become a beneficiary of the trust.
So in using a deed to make the change of trustee, a record can also be put in place that manages the need to avoid unwanted stamp duty if that is not already contained in the trust deed. We note that it is best that the record should be put in a separate deed to the deed changing the trustee so that there is a clear separation of the happening of those 2 things.
There is much more than can be said about the process to change a trustee of a trust. So if you would like to know:
- how to effectively change a trustee of a trust; and
- how to record those things that need to be managed in changing a trustee; and
- how to avoid unwanted outcomes from making the change of trustee,
please get in touch with us so we can send you a copy of our changing a trustee guide.
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
