Trust Cloning Tax Concession Abolished

On 31 October 2008 the Federal Government announced that it will remove the capital gains tax exception for clone trusts.

Trust cloning has been an important tool in the kit of estate planning lawyers, particularly useful in situations where a will maker has substantial assets in a discretionary (family) trust which he or she wishes to pass to a number of children.

Whilst passing control of the single trust might lead to disagreement and expensive disputes, a solution has been to "clone" it into two or more separate trusts, and pass control of each one to a separate child.  Assets could then be transferred from the original to the clone trust without triggering a CGT event E1 or E2.

Even where a will maker did not choose to go down this path during his or her lifetime, it was not uncommon for the beneficiaries to do so once they realised the difficulties of operating the family trust jointly.

There will be some clients and accountants who have had clone trusts established, but not yet transferred property across to the new trust.  Please note that any transfer occurring on or after 31 October may now be subject to capital gains tax, even if the trust came into existence before that date.  Even though the transfer may not be for payment, the market value substitution rule may apply to deem that the transferor has disposed of the property for its market value.

Please feel free to contact Paul Stephens or Kent Mallinson to discuss any trust or estate planning issues you may wish to raise. 

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November 2008

Paul Stephens
Director
T 03 5337 0262
email: pstephens@nevettford.com.au

Cathy Drake
Senior Associate
T: 03 5337 0264
email:
cdrake@nevettford.com.au

Kent Mallinson
Lawyer
T 03 5337 0250
email: kmallinson@nevettford.com.au 

Rebecca Hanley
Lawyer
T: 03 5337 0265
email:
rhanley@nevettford.com.au