In conversation with Julie Van der Velde on Trust Variations

Thursday January 18, 2018

Julie Van der Velde is the principal of a specialised commercial law firm, VdV Legal and has degrees in Business and Law and a Masters of Taxation Law. With over 15 years' experience advising South Australian businesses her practice focusses on taxation and trust law with an emphasis on estate planning, taxation, tax planning, business structuring, business succession and intergenerational transfers. Julie is a registered Trust and Estate Practitioner, a Chartered Tax Advisor and a Fellow of CPA Australia. She also facilitates on the Law Society of South Australia's GDLP program and is the Taxation Institute's SME Chartered Tax Advisor for 2017. Julie Van Der Velde

We had the pleasure of sitting down with Julie recently to discuss key challenges and opportunities facing the industry today.

You can find the full Q&A below.

Can you tell us a little bit about yourself (experience, your business, expertise, etc)?

My experience over the last twenty years of practice has been working with SME businesses, their owners and advisors. I specialise in succession planning for businesses and business families and have particular expertise in developing commercial tax efficient structures customised for individual family dynamics. I was recently awarded Chartered SME Tax Advisor of the year for 2017 by the Taxation Institute and am listed in Doyle's Guide as a recommended estate planning lawyer.

Besides being admitted to the Supreme Court of South Australia and the High Court of Australia I am also a fellow of the Taxation Institute and a Chartered Tax Advisor. Since 2009 I have been a full member of STEP, the preeminent international professional body for trust and estate professionals and I am currently a vice chair of the South Australian STEP Branch Committee. I have previously served on a number of committees in respect of taxation, most recently as chair of the South Australian Tax Roundtable Committee of the Taxation Institute.

I started VdV Legal in 2016 and it is a small but growing boutique legal practice in the Adelaide CBD providing high levels of expertise in taxation law, trust law, including specialised trusts such as self managed superannuation funds, and the structure and restructure of business and wealth management entities. VdV Legal is a Law Society Gold Alliance firm and listed with the international Society of Trust and Estate Practitioners.

The firm provides assistance to professional advisers and their clients dealing with complex entities, transactions and disputes. Our focus is to provide technical tax and equity opinions, advices and commercial documentation that are practically and commercially useful to our clients.

VdV Legal is proud to maintain a reputation for making complex legal issues clear and manageable so that commercial decisions can be made based on the best information. Every client is important and receives our full attention.

What are some of the challenges professionals are facing in terms of trusts variations?

I think the biggest challenge is the disconnect between taxation law and equity, the laws under which trust structures exist. Taxation law treats a trust as an entity for some things (not all) while at law it is a relationship. This means that almost anyone advising on a trust, and most particularly on a trust variation, will be held responsible for the correct application of a wide range of legislation and general law much of which does not interact smoothly if at all.

The ATO and the legislature have recognised that the taxation of trusts is in urgent need of a rewrite on numerous occasions. Unfortunately all that seems to eventuate is multiple, poorly coordinated patches tacked on to existing legislation to fix some real or perceived issue. The complexity has been growing even faster than the quantum of legislation.

All this adds to the problems involved in determining what if any variations are possible for a particular trust. Some of the biggest issues come from poorly drafted deeds or misinterpretation of the provisions in a deed. The risks are huge as an invalid variation of a trust deed can lead to many if not all of the trustee’s subsequent actions being either beyond that trustee’s powers or void altogether. This could mean, for instance, that for all subsequent years no one is actually presently entitled to income which was thought to be distributed. As all professionals are aware this would result in significant taxation bills and potentially claims on professional liability insurers.

What are the common mistakes accountants usually make when they work in this area?

Most accountants seem to put more effort and thought into looking after the client than they do into considering the risk to their own firm. Often accountants will take the risk of interpreting a trust clause far more widely than is likely to be accepted as valid by a court in an attempt to ‘help’ the client. There are still a few who are drafting legal documents – an activity for which they are not even insured - to save the client paying for a solicitor to draft an effective variation of the deed.

Another common mistake is to apply a decision from a case or the words in a Taxation Office ruling to a variety of trusts with deeds that are very different from the particular one considered in the case or ruling. A reason many people find trust law so confusing is that every trust deed is unique. As someone who specialises in producing customised deeds I am very aware of the good side of this flexibility but the down side is that you simply cannot rely on a provision, even one you have seen in every deed you have dealt with, being in the next one you see.

What are some of the big trends and developments you see ahead for the area?

The two major trends which I believe will affect all professionals in this area are firstly that the ATO are in many ways changing their approach to their treatment of trust structures. With the demise of the statement of principles we are seeing a more technical general law approach to the content of a trust deed by the ATO. In the determination TD 2012/21 they indicated that in respect of CGT events E1 and E2 (the ruling does not refer to any other events) any valid exercise of a power of amendment would not be a resettlement unless it terminated the trust or caused assets to be held on a separate charter of rights and obligations. The focus now is on the validity of a variation; being certain that what is done is in fact able to be done under the deed and that all the requirements for variation as laid down in the deed are correctly observed. This means the Commissioner accepts a wide variety of variations but puts a far greater onus on the advisor to ensure they are in fact valid.

The second trend that is becoming more and more evident is that trust variations and trustee decisions generally are becoming the subject of more and more family litigation. The many many occasions in which the deed of the Hope Margaret Hancock Trust has been considered by a court may be unusual but disaffected children, disappointed beneficiaries and disgruntled ex spouses are frequently examining the family trust or self managed superannuation fund for signs of inappropriate or invalid dealings by the trustee. Again this puts a far greater onus on the advisor to ensure that any advice given or document drafted will withstand the scrutiny of the courts.

Your topic focuses on ‘Trusts Variations: Practice and Pitfalls’. Why is it important for practitioners to attend your session?

In a complex and constantly evolving commercial environment the rules documented in trust structures, many of which were set up in the last century, are often not suitable for undertaking the transactions or business operations their trustees determine to be in the best interests of the beneficiaries. Particularly in South Australia where a trust may operate for an indefinite period many trustees wish to update a trust deed to extend the vesting date. How and whether this will be possible are the key questions and I will be addressing these. Understanding the position if a trustee purports to continue to operate a trust after the vesting date is the subject of recent ATO publication, this is becoming a growing problem.

My objective in this session will be to give professionals an understanding of the options for variation of a discretionary trust. I am including practical tips as to what to look for in a deed and traps that may catch the unwary advisor. There is also an up to date examination of the impact of both federal and state legislation and the positions taken by each of the ATO and RevenueSA to trust variations.

Finally, provided only that it is published in time, I will be examining the new position the ATO have indicated that they will take on variations which involve ‘splitting’ a trust. 

You can hear more from Julie at the 3rd Annual Trusts Symposium seminar, being held on Tuesday 20 February at the Stamford Plaza Adelaide Hotel, Adelaide.



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