Emily Pritchard answers your burning questions relating to duty and the establishment of trusts. […]
What State is Your Trust In?
Stephen Harvey, current as of: 28 July 2016.
Nominating the State laws applicable to a trust can sometimes cause concerns for practitioners who are unsure about the ins and outs of the decision.
Most modern trust deeds elect to adopt the laws of a specified State as the jurisdiction for the trust, meaning the laws of that State will govern the trust. This choice of governing law is, however, not necessarily conclusive.
By way of example, why would you establish a trust in Sydney and then choose its governing law to be that of Outer Mongolia? Extreme, perhaps, but it illustrates the point. Our courts will generally ignore a choice of law if it appears to have been made for ulterior motives, such as to avoid the application of a law which might otherwise have applied.
What The Courts Consider
Usually, the courts tend to apply the law with which the trust has its closest and most substantial connection, taking into consideration:
- Where the trust’s assets are located;
- Where the trustee lives or carries on business; and
- Where the trust’s management is located.
It seems these factors, from the court’s point of view, are more relevant than the specific choice of law or where the trust deed might be executed.
What State Should I Specify?
The choice of State or Territory is entirely up to you; however, you should think through the following:
- Some States will assess duty on the execution of a trust deed in the jurisdiction, for instance Queensland has no duty while NSW charges $500;
- Once established, it is open for the trust to go to any other Australian jurisdiction to commence operations and acquire assets. Provided it is properly established in the first place, there should be no reason why the trust cannot operate in any jurisdiction or in multiple jurisdictions. The trust commences to operate and, in doing so, acquires assets. The trust will pay duty on any acquisition of dutiable property, usually based on the State in which the transaction takes place, or the asset is situated. Each State has its own rules regarding the payment of duty on the acquisition of dutiable property, none of which change due to the jurisdiction stated in the trust deed. For example, if the trust deed says the jurisdiction is Queensland, and the trust acquires dutiable property in NSW, duty will generally be charged in NSW, and not Queensland;
- Depending on where it the trust operates, there may be local laws which regulate its activities; and
- The trustee may change the jurisdiction of the trust at any time, and the power to do so is provided in all Acis trust deeds
Please call us on 1800 773 477 or email if you would like further insight or assistance in the choice of jurisdiction for your trusts.