Navigating the Preparation of Resolutions for Trusts

At Strategem Financial Services, we understand the complexities involved in trust management and offer comprehensive assistance in preparing resolutions to ensure compliance and mitigate risks effectively.

Setting up a Discretionary Trust or a Family Trust, is a detailed process that extends beyond its establishment. An integral aspect of effectively managing a trust is the careful preparation of resolutions. Resolutions serve as formal decisions documented by the trustee, outlining various aspects of trust management, including tax obligations, beneficiary entitlements, and regulatory compliance.

In this blog, we’re going to give you an understanding of how we navigate the preparation of resolutions for our client’s Trusts.

Why is accurately preparing resolutions essential for your Trust?

Resolutions are crucial for trustees aiming to make beneficiaries presently entitled to trust income for an income year through resolutions. They ensure compliance with trust deed terms and legal requirements, preventing potential assessments on the trustee or default beneficiaries.

The main benefits:

1. Legal Compliance
   By accurately preparing resolutions, trustees ensure compliance with the terms outlined in the trust deed and legal requirements. This compliance is crucial for avoiding disputes and legal challenges that may arise due to discrepancies or inconsistencies in the resolution documentation.

2. Avoidance of Assessments
   Resolutions serve as formal decisions documenting the allocation of trust income to beneficiaries. Accurate resolutions prevent potential assessments on the trustee or default beneficiaries by clearly delineating the entitlements of each beneficiary as per the trust deed provisions.

3. Prevention of Tax Liabilities
   Trust income distributions, if not accurately documented through resolutions, can lead to tax liabilities for the trustee or default beneficiaries. Accurate resolutions help prevent such tax liabilities by ensuring that income distributions are in line with tax laws and regulations.

4. Trustee Accountability
   Accurate resolutions enhance trustee accountability by providing a transparent record of trust income distribution decisions. This transparency is essential for demonstrating compliance with fiduciary duties and obligations, thereby maintaining trust integrity.

5. Beneficiary Confidence
   Clear and accurate resolutions instill confidence in beneficiaries regarding the fairness and transparency of income distribution within the trust. This confidence fosters positive relationships between the trustee and beneficiaries, promoting trust longevity and stability.

6. Risk Mitigation
   Accurate resolutions mitigate the risk of disputes or challenges from beneficiaries regarding their entitlements to trust income. Clear documentation of income distribution decisions reduces the likelihood of misunderstandings or disagreements, thus minimizing potential legal risks.

7. Financial Planning
   Accurate resolutions provide beneficiaries with clarity regarding their entitlements to trust income, enabling better financial planning and decision-making. Beneficiaries can effectively manage their financial affairs based on the income they expect to receive from the trust.

Checklist for Preparing Resolutions:

1. Complete Trust Deed
   We ensure possession of a comprehensive trust deed, including any amendments, to ensure resolution consistency with trust terms.

2. Eligible Beneficiaries
   We confirm that intended beneficiaries fall within the class of persons eligible to benefit from trust income, avoiding errors that may lead to assessments on default beneficiaries or the trustee.

3. Vested Trust Status
   We verify that the trust has not vested, ensuring resolutions align with trust provisions and preventing ineffective appointments inconsistent with vested entitlements.

4. Family Trust Election
   For trusts with a family trust election, we confirm beneficiary eligibility within the specified family group to avoid family trust distribution tax liabilities.

5. Resolution Timing
   We ensure that we make all resolutions by 30 June for trust income entitlements and within two months after the end of the income year for capital gains, complying with trust deed requirements for earlier resolutions if applicable.

6. Written Resolutions
   While not mandatory, written resolutions provide clearer evidence and are essential for effectively streaming capital gains or franked distributions.

7. Clarity and Unambiguity
   We ensure resolution clarity and unambiguity to address all scenarios effectively, avoiding potential disputes regarding entitlements.

8. Vested Entitlements
   We verify beneficiaries' entitlements as vested by 30 June, ensuring resolution effectiveness and preventing potential assessments on the trustee.

9. Effective Streaming
   For streaming capital gains or franked distributions, we ensure compliance with trust deed terms and legislative requirements, maintaining entitlement integrity.

10. Record-Keeping
    We maintain accurate records of resolutions and related documentation for evidential purposes and compliance with trust deed provisions.

11. TFN Quotation
    We ensure all entitled beneficiaries have quoted their Tax File Numbers (TFNs) to comply with TFN withholding rules for closely held trusts.

Navigating the preparation of resolutions for Discretionary Trusts demands attention to detail, compliance with trust deed provisions, and adherence to legal requirements. At Strategem we work incredibly hard to ensure that we serve our clients effectively so we can help them achieve their goals.

Contact us today to learn more about our services and how we can assist you in setting up and managing your trust.

We are here to help

If you need further advice on this topic, please do not hesitate to contact our office on (03) 5445 4777 and one of our Accountants will be available to support you.