Trust Deed Variations

Trust deeds are varied for ordinary reasons: to update an old deed, to change who controls the trust, to exclude foreign beneficiaries, to extend a vesting date, to permit streaming, or to fix a drafting defect that has become inconvenient. The mechanics look simple. The risk is not in the drafting of the variation, it is in whether the deed authorises it and what the change sets off.

The amendment power is the starting point

A trustee can only vary a deed to the extent the deed permits. Amendment powers differ considerably between providers and eras. Common limits include:

• clauses that cannot be amended at all, often the beneficiary class, the vesting date or the amendment power itself
• consent requirements, typically of an appointor, principal, guardian or in some deeds the beneficiaries
• prohibitions on any amendment that benefits the settlor or the trustee
• procedural requirements about form, execution and notice
• restrictions preventing a variation that would change the essential nature of the trust

A variation made outside the power is not merely risky; it may be void, which can leave the trust operating for years on terms that were never validly adopted. Where earlier variations are in the chain, we check those too, because an invalid variation in the past can undermine everything built on it since.

Resettlement and capital gains tax

A variation made under a valid amendment power does not normally bring the trust to an end for tax purposes. Where the deed authorises the change, the Commissioner accepts that CGT event E1 or E2 does not happen unless the trust actually terminates at law, or the effect of the change is that a particular asset comes to be held on a separate charter of rights and obligations amounting to a different trust.

That leaves a narrow but real category of changes that do go too far: substituting a new trust fund, or recasting the nature of beneficiaries' interests so fundamentally that a different trust results. Adding or removing beneficiaries under a power the deed actually confers is not, on its own, in that category. We advise on where a proposed variation sits before it is drafted, and, where the position is genuinely uncertain, on whether the change is worth making at all.

The question is rarely whether a variation is possible. It is whether the outcome you want is worth what the variation costs once tax and duty are counted.

Duty on Victorian land

Where a trust holds Victorian land, a variation can have duty consequences quite separate from the income tax position. Changes touching beneficial interests need to be considered against the duty legislation before the document is signed, not after. A federal rollover, where one is available, does not answer the state duty question.

Foreign beneficiary exclusions

Many older discretionary trust deeds define the beneficiary class so widely that a foreign person is capable of benefiting, even where no foreign person is involved with the family. For Victorian land that can attract foreign purchaser additional duty and the absentee owner land tax surcharge. The usual answer is a variation excluding foreign persons, drafted to satisfy the relevant tests while preserving the flexibility the family actually uses. Timing matters, because the exclusion generally needs to be in place before the relevant liability arises.

What we do

• Read the original deed and every variation since, and confirm the power relied on.
• Identify the consents and execution requirements, and who must sign.
• Advise on resettlement, capital gains tax and duty before the variation is prepared.
• Draft the deed of variation and the accompanying trustee resolutions and consents.
• Tell you where a proposed change is not worth making, and what the alternatives are.

Where your accountant has raised the issue, we are happy to work through the tax position with them directly before anything is documented.

This page is general information. It is not legal or tax advice, and the terms of your particular deed will change the answer.