Individual taxation research paper arlene case

In the absence of a specific power of variation, there may still be some scope using the variation powers in the various Trustee Acts to request a Court to vary the Will eg sec 59C of SA Act.

A testamentary trust is a trust created by a Will or a codicil to a Will and not inter vivos.

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It is done by transfer after inheritance and does not require and should not involve any variation to the Will or renunciation of interests. Is it a different trust to the deceased estate in administration? Therefore any income derived from gifted property would be excluded from the concessions applying to excepted trust income. If it is simply whether we can add property, the answer is yes. In my opinion all that is necessary to fall within sec. Usually, the rule does not apply at all. Students should explain the purpose, types of taxes and the arlenes they are imposed. Deduction for AGI is a more favorable outcome for many taxpayers than an itemized deduction, which the next paragraph addresses. It is therefore necessary in all cases other than charity cases that the persons or objects to benefit under the will shall be, by the will itself, ascertained or made ascertainable. To ensure there are no tax problems with the settlor being entitled to the property causing the trustee to be taxed at the maximum rate the trustee should not be the settlor. The ATO is also of the view that if a FTE was made in one, it must be made with the same test individual in the other. Such a view is too narrow.

He does not exercise that right if in effect he empowers his executors to say what persons or objects are to be his beneficiaries': Chichester Diocesan Fund v Simpson 2.

Of possible interest to the reader, he also warns at : During argument, I remarked that the discretionary trust set up in the instant case was one which makes a judge in equity in wonder why equity courts are bothering with this sort of trust at all. It is clear that the ATO treats them as different.

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If it is life interest with discretion to pay income to others then a FTE may restrict the tax effective distribution of the income where the life tenant is not a parent, spouse or child of the deceased. Asset protection for one person may mean the creditor or ex-spouse who may have a moral claim is left with nothing. What happened in the present case is that the trustee borrowed funds and used the borrowed funds to invest in such a way as to derive assessable income from the investment. Without agreeing that was the case, Young J said at : How then does the rule against delegation apply where the will sets up a trust? The case was argued on the basis that a gift to a typical discretionary trust meant it was possible for the trustee to add as beneficiaries almost the whole world with the exception of the limited specified ineligible beneficiaries. Some assets but not land can be transferred without probate. Therefore, it may be difficult to achieve the desired separation of control by cloning. Assume the testamentary trust is in existence, and assume the Will provides that the trustee may accept gifts. The rule is part of the law of New South Wales. However the case of Gregory v Hudson [10] indicates this is not the case. Property can be transferred absolutely before death or to an inter vivos trust or left for the Will to deal with it.

The assets will only be protected from creditors, ex spouses etc if the beneficiary does not have control so someone else must trustee or appointor. Counsel were surprised that any judge should take this view and accordingly I announced during the argument that I would not seek to develop it in this case, but I believe that the message should be put abroad that the time may well have come where equity will have to reconsider its attitude to enforcing this sort of trust.

Where minor children receive income distributions from trusts, the income is usually taxed without the benefit of the tax free threshold and at roughly the same rate as the top adult rate.

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If it were, what do you do when 16 years after the trust has commenced and all the income has been taxed concessionally, Wilma disclaims her interest in the property? This brings us back to the issue of the delegation of testamentary powers. Strictly read, the provision requires the preservation of the actual property transferred! Transferring money, if money was inherited, avoids this problem. I also doubt many people really think through the risks in giving responsibility for the assets to a trustee. Minors who are beneficiaries of the trust can receive income from assets transferred into the trust and from any substituted or grown assets eg by borrowing, investment, sale and purchase etc. There is a further apparent exception where secret or half-secret trusts are used. Charles has a home made Will in which he leaves everything he has, including shares and real estate investments to his wife, Dianna. The case was argued on the basis that a gift to a typical discretionary trust meant it was possible for the trustee to add as beneficiaries almost the whole world with the exception of the limited specified ineligible beneficiaries. The recent High Court decision in CPT Custodians [2] is an example of general trust law developments with the tax advisors trying to survive the swell. Dianna may transfer as much property as she wishes or allow the property to derive as much income as she or an associate can direct through the property but the excess is not concessionally taxed.

This type of trust can only obtain the tax benefit where the deceased is the parent of the minor child. It is therefore necessary in all cases other than charity cases that the persons or objects to benefit under the will shall be, by the will itself, ascertained or made ascertainable.

The sources were: 1. The benefit of the testamentary trust is not confined to the assets owned by the deceased or by the deceased estate during administration but that does not mean that other added assets will give rise to income that can be treated concessionally.

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The beneficiaries at this stage have no right to anything except proper administration. Thus, if a testator leaves property to the executor to convey it to the trustees for the Barristers' Sailing Club, that will be the end of the matter….

Individual taxation research paper arlene case

The property transferred to the trustee must earn the income. A person could make a will which said that he gave all his property to X to be held on trust, the terms of which were that X was to arrange for a telephone number and was to pay the whole of the testator's estate to the hundredth person who rang that number, or for the first child born at a certain hospital in Asset protection for one person may mean the creditor or ex-spouse who may have a moral claim is left with nothing. It may also be fixed in the sense that a particular person has right to occupy a house for life or until marriage or entry into a nursing home or whatever. Where the choice is made to leave property in trust, that trust can be created in the Will, with the gift being the settled property or it can be left to a trustee of an existing trust which will already have other property at least the settled sum. It can be a fixed trust eg where a life interest is left or a discretionary trust or a hybrid. The Tribunal from which this case was the Appeal to the Federal Court failed to identify the relevant agreement. There is another major advantage that is of particular interest to us: the income tax savings on distributions of unearned trust income to minors. What happened in the present case is that the trustee borrowed funds and used the borrowed funds to invest in such a way as to derive assessable income from the investment. It was submitted for the Commissioner, however, that for the subsection to operate, it was necessary that the assessable income of the trust estate itself be sourced in the will or property of the deceased. It is therefore necessary in all cases other than charity cases that the persons or objects to benefit under the will shall be, by the will itself, ascertained or made ascertainable. The evidence would be more likely to show commencement at the earliest of the time when income is first distributed under that trust or a new bank account opened or a TFN sought or some other act which indicates the trustee is now holding under these trusts. It can also end by accident if there is no trust property. Here the trust is similar to the typical inter vivos discretionary trust However, where the trust has income tax advantages of income distribution to minors, I assume our concern is to ensure that those tax advantages are maintained.
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Pleasant Hill, CA CPA / Arlene K. Mose, CPA