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“… and until paid shall be held as a separate trust fund”

Published on 01 Jul 13 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

A common clause in discretionary trust deeds provides that, if amounts are set aside for a beneficiary but not paid, then the trustee shall hold those amounts as a separate trust fund for the beneficiary. This article discusses whether such a provision is necessary to ensure that the beneficiary is presently entitled to the amount set aside and concludes that it is not and, further, that the clause may have adverse consequences for a trustee in breach of their duties in respect of the separate trust fund. Obviously, the beneficiary of the separate trust will have an entitlement to payment of the amount set aside.

This article considers whether the beneficiary may also have a claim for compensation for losses arising from non-payment and, if so, whether a claim can be made against the assets of the original trust for those losses, and concludes that such a claim may be successful in some circumstances. Alternative provisions are suggested for the protection of the original trustee if the amounts set aside remain unpaid for any length of time.

Author profile:

Grahame Young
Grahame practises as commercial counsel at Francis Burt Chambers in Perth. Prior to commencing practice as a barrister in 2001 he had broad experience as a solicitor and company director. Grahame’s principal areas of practice include transactional taxes; equity, trusts and succession; corporate law; and property law. He has a particular interest in structuring and restructuring corporate and family groups. He has spoken and written extensively on a wide range of legal and taxation topics for The Tax Institute and other professional bodies. He is editor of Duties Legislation Western Australia. Grahame has served as State Chair and National Councillor of The Tax Institute and received its Meritorious Service Award. Current at 04 July 2014 Click here to expand/collapse more articles by Grahame YOUNG.
 
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