Key steps when transferring property from a discretionary or unit trust to a beneficiary
As trustee of a trust that holds real property, you may need to transfer that property to a beneficiary—whether as part of a capital distribution, trust wind-up, or following a development. On the surface, it might feel like a simple handover. But in practice, these transactions raise important legal, tax, and documentation issues.
The recent case of Boullo v Commissioner of State Revenue [2023] VCAT 1164 illustrates just how closely these transfers are scrutinised, especially when there’s money involved behind the scenes. If you get the steps wrong or fail to properly evidence the nature of the distribution, your trust may be denied a stamp duty exemption and exposed to other compliance risks.
Here’s what to keep in mind—and why seeking the right professional support is essential.
1. Confirm Your Authority Under the Deed
Start by reviewing the trust deed (and any variations). Your powers as trustee and the identity of eligible beneficiaries flow from this document. Discretionary trust deeds usually give you broad powers to distribute capital, but may include conditions such as formal resolutions or restrictions on who can receive what, and when.
You also need to be clear on whether the beneficiary was within the defined class at the relevant time. If the deed was varied after the trust was established, and the beneficiary was only added later, this could jeopardise eligibility for a duty exemption under section 36 or 36A of the Duties Act 2000 (Vic).
This was a key issue in Boullo, where the property was transferred to two individuals who were also creditors of the trust. VCAT found that the transfer operated to extinguish debts owed by the trustee, meaning it was a commercial transaction, not a distribution in accordance with trust terms. As a result, the exemption was denied, and duty was payable.
Tip: Have your lawyer review the deed to ensure the transfer is within your powers and consistent with the trust’s original purpose and structure.
2. Document the Distribution Properly
Once you’ve confirmed your authority, the next step is to document the distribution clearly and comprehensively. This is more than a paper trail—it’s critical to evidencing the legal character of the transaction, especially if the State Revenue Office (SRO) reviews it.
Key documents typically include:
- A trustee resolution stating the basis for the distribution, the property details, and the beneficiary
- A deed of distribution or appointment, depending on the requirements of the trust deed
- A beneficiary acknowledgement, particularly if they are assuming any obligations (e.g., a mortgage)
You also need to consider whether any amounts are owed to the beneficiary. If the trust is indebted to them, such as by way of unpaid distributions or loans, you must be especially careful. In Boullo, even though the transfer was to named beneficiaries, VCAT found it was made in satisfaction of a debt, not as a trust distribution. The substance of the transaction overrode the form.
Tip: Engage your accountant to review the trust’s financials and clarify whether the beneficiary has any loan accounts or entitlements that might affect the nature of the transfer
3. Manage Duty and Conveyancing Requirements
A trust-to-beneficiary transfer may be exempt from duty under section 36 or 36A of the Duties Act, but these exemptions are strictly interpreted. You’ll need to show that:
- The beneficiary was part of the original class of potential beneficiaries when the trust was established, and
- The transfer is a genuine distribution—not consideration for a loan, service, or other obligation
In Boullo, the Tribunal found that the transfer extinguished a trustee debt, and therefore failed to meet the statutory conditions for duty exemption even though the recipients were beneficiaries under the trust.
When preparing for the transfer, you’ll need to complete:
- A Duties Online submission with supporting documentation
- A Transfer of Land form through the Land Titles Office
- Evidence of trustee authority, including certified copies of the deed and resolutions
- A statutory declaration outlining the nature of the transaction and confirming no consideration was paid
If the property is mortgaged, lender consent and possibly a refinance will also be required.
Tip: Have your lawyer prepare and lodge the duty documentation, and work with your accountant to prepare any financial records the SRO may request.
Why You Need a Professional Team
As trustee, you’re personally responsible for ensuring the trust operates within the law and that includes getting property distributions right. These transactions touch on multiple areas of law: trust law, tax, stamp duty, and conveyancing. It’s not realistic or advisable to go it alone.
Working with your lawyer ensures that:
- The deed is interpreted correctly
- Resolutions and transfer documents are valid
- Duty exemptions are properly assessed and applied for
Your accountant’s role is equally important:
- Reviewing trust financials and beneficiary accounts
- Identifying any commercial elements that may affect tax or duty outcomes
- Ensuring distributions are consistent with previous accounting treatments
Engaging both at the planning stage can save the trust from significant costs or penalties later.
Trust property distributions aren’t just an administrative step; they’re a legal event that can trigger stamp duty, tax consequences, and scrutiny from regulators. As Boullo shows, if the transaction is not clearly a gift or distribution under trust terms, the duty consequences can be significant.
Suppose you’re considering transferring property from a trust to a beneficiary. In that case, our team can guide you through each step, ensuring the transaction is valid, well-documented, and compliant with the law.
Disclaimer
The information on our website is general and is not legal advice. We put a lot of work into making our content insightful, but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues; just reach out.