Sent: 12-06-2006 14:02:19
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Trust Cloning - The Way of the Future - Tony Crilly
Trust Cloning and Business Succession
Recently we have been assisting clients with a restructure of their business assets for sale purposes, to enable them to claim the Small Business Exemptions under ITAA 1997. We also have been assisting clients in structuring their assets to create a more effective trust, to deal with future distribution of those assets between their chosen beneficiaries. Part of that process has been to “split” or “clone” a Family Discretionary Trust. This is a complicated process and requires very careful consideration of all of the circumstances.
Essentially there are some critical tax office rulings including TD 2004/14 concerning acquisition and cost base applications for transferring an asset between two Trusts where the beneficiaries and the terms of the Trust are the same. Essentially, if the requirements are met, there will not be a CGT event and the asset (including real property) can be transferred to the other Trust and preserve the cost base. The event itself will not be taxable because it is effectively “cloning” the first Trust. Taxation Ruling 2005/D15 clarifies conditions that must be met for the exception to apply. It is a question of fact on a case by case basis to ensure that the terms of the Trust are the same. Family Trust and interposed entity elections must be made. The following things do not need to be the same for each Trust:
- The name of the Trust
- Commencement or establishment date
- The Settlor, or
- The Trust property (except the transferred asset must be an asset of both Trusts).
Trading stock is of special consideration in the circumstances and the consent of any secured financier will have to be obtained.
There are statements of principals issued by the ATO in August 2001 so that the general rules about the splitting or cloning of Trusts as set out in detail.
In Queensland, there is a particular benefit as there will be no stamp duty on the transfer of assets between the “original Trust” and the “cloned Trust”, if the relevant stamp duty ruling is met. This is slightly more restrictive in its terms and special consideration must be given to the vesting date of the Trust. The new Trust’s vesting date cannot be longer than the original Trust.
However, this is a very effective means of splitting business assets to enable the small business concessions to be cloned on the sale of a business asset. It is also a very effective means of transferring assets to new “cloned Trusts” for the purposes of Estate Planning. For instance, if there are three properties that are intended to pass to three children beneficiaries, the controlling individual of the Family Trust may choose to split those three assets into cloned Trusts. This can be set up to enable a change of controlling individual on death of the original controlling person. These are just a couple of examples of excellent business succession strategies that can be established for high net worth clients and are certainly worth while considering in the context of their overall Estate Plan.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.