Property passing to a beneficiary of a discretionary trust (where the beneficiary is acting as trustee of another trust with natural person beneficiaries)

Circumstances/Transactions:

A transfer from a discretionary trust (the principal trust) to the beneficiary who acts as trustee of another trust (the second trust) of which all the beneficiaries were natural person relevant beneficiaries:

• at the relevant time, or
• became a beneficiary after the relevant time by a permitted event. 

For the purposes of s36A: 

• Discretionary trust and beneficiary are defined in s36A(3). 
• The discretionary trust from which property is being transferred to a beneficiary of that trust is called the principal trust. 
• Relevant time means the time at which the property first became subject to the principal trust.

Evidence:

The following information is required: 

1. The Digital Duties Form.
2. A complete copy of the stamped discretionary trust (principal trust) deed, together with copies of all amending deeds.
3. A complete copy of the stamped second trust deed, together with copies of all amending deeds.
4. In relation to any trust deed for which a copy of the stamped deed cannot be produced: 
   • A statutory declaration declaring what steps have been taken to locate the lost original trust deed, made by a person having knowledge of those steps. If an unstamped copy of the trust deed is available, you are required to attach a copy and explain how it was obtained.
   • Copies of financial statements and income tax returns of the principal trust for the last three financial years, showing whether the property was dealt with as an asset of the trust.
   • Any other material showing that the property is an asset of the principal trust, for example:
     • A copy of the contract of sale for the purchase of the property by the trustee (showing capacity as trustee of the trust).
     • if the trustee is a corporation, minutes of directors' meeting resolving to accept appointment as trustee of the trust and acquire the property. 
5. A copy of the historical certificate of title.
6. Copies of financial statements of the principal trust for the last three financial years. 
7. If the property's title particulars have changed since the relevant time, provide copies of the parent titles and the plan of subdivision or consolidation showing how the current title particulars were derived from the parent title.
8. A statutory declaration by the trustee of the principal trust, addressing the matters set out below: 
   • State whether the transferee is the beneficiary of the principal trust and is a trustee of a second trust of which all the beneficiaries are relevant beneficiaries who are natural persons.

Capacity of trustee

• State whether the trustee has held the property in any other capacity, either before or after the relevant time, and if so explain in what other capacity they acted.
• Identify the provision of the principal trust deed under which provides the trustee with the power to distribute capital to the transferees.

The relevant time 

Note: A beneficiary must be beneficiary at the relevant time or became a beneficiary after the relevant time by reason of s36A(1)(b)(ii)(A) or (B) or (C).

• State the date the property first became subject to the principal trust.
• Identify the provision of the principal trust deed which shows the transferee was a beneficiary at the relevant time.
• If the transferee is not named as a beneficiary in the principal trust deed explain how the transferee is considered to be a beneficiary of the principal trust at the relevant time, or became a beneficiary after the relevant time, and
  • Identify the class of beneficiary they fall into under the principal trust.
  • State when they became a beneficiary of the principal trust.

The second trust

Note: for s36A(1)(c)(ii) to apply all beneficiaries of the second trust must be relevant beneficiaries of that second trust.

• Identify the provision of the second trust deed under which the beneficiaries of the second trust are relevant beneficiaries as defined in s36A(3).
• If any of the beneficiaries of the second trust are not named as a beneficiaries in the second trust deed: 
  • Explain how the beneficiary is considered to be a beneficiary of the second trust at the relevant time or how that person became a beneficiary of that trust after the relevant time.
  • Identify the class of beneficiary they fall into under the second trust.
  • State when they became a beneficiary of the second trust.

Consideration and mortgages

• State whether the transfer is part of a sale or other arrangement under which there exists consideration for the transfer.
• State whether the transferee paid any amount to the transferor or to any other person in respect of the transfer.
• State whether a trust has borrowed funds from another person other than a financial institution (e.g. beneficiary loan accounts, loans from associates etc). State whether the transfer related to the forgiveness of any such loan. If yes, provide full details of the arrangement together with copies of loan statements before and after forgiveness of the loan. 
• If loan accounts (as referred to in the previous point) exist and the loans are not to be forgiven as part of the transfer, state how the trust intends to pay out the loans.
• State whether the property was encumbered by a mortgage, whether registered or unregistered, immediately before the transfer. If so, provide evidence of the amount owing under that mortgage immediately before and after the transfer (e.g. account statement, letter from the financier).
• State whether the mortgage liability was either:
  • Assumed by the transferee.
  • Paid out by the transferee with a new mortgage over the property that secures the same or greater amount as that outstanding under the mortgage that existed before the transfer. 
• If the mortgage liability was assumed or paid out by the transferee then state the circumstances for the initial mortgage, including: 
  • When was the mortgage created, in particular was it at or before the time the property became subject to the trust.
  • Whether the mortgage was part of a refinancing of an earlier mortgage. If yes, provide details about when the earlier mortgage was created. 
  • Whether the mortgage was created to secure borrowings that have been applied to the improvement of the property. If yes, provide documentary evidence to support this.
  • Whether the mortgage was obtained in connection with matters unrelated to the property. If yes, please set out what these other matters are.
• If the mortgage liability was not assumed or paid out in full by the transferee, explain how the mortgage liability was reduced or discharged and provide evidence of the source of the funds (e.g. bank/financial statements).