Dangerous trusts and hidden tax stings

Work has been a bit quiet, so you are pleased to receive a sales advice that your client, Percy, has agreed to buy an investment property for $2.5 million. Shortly afterwards, you receive a telephone call from Percy’s accountant, Penelope, who tells you that the purchase will be in the name of Periwinkle Pty Limited as trustee of the Percy Family Trust.

Percy also telephones to stress the importance of acting quickly. Other people were after the property, too, and he fears that if he doesn’t sign up quickly he will lose the deal.

You telephone the vendor’s solicitor to tell him the name of the purchaser. The contract arrives, it is all fine, and is quickly exchanged. Percy is very satisfied.

Shortly afterwards, you receive another call from Percy raising a query about the Trust. He reminds you that his first marriage failed and he wants to make sure Patricia, his second wife, is a potential beneficiary.

You check the deed and see that the potential beneficiaries include ‘the spouse of Percy’, which fits the bill. However, you also notice the definition of the vesting date for the trust includes not only 21 years after the death of the last survivor of King George VI alive when the deed was signed, but also the 40th anniversary of its signing – a little over six months away.

You check further to see there is a pretty broad amendment clause with a few qualifications, including that any amendment must comply with the rule against perpetuities.

You call Percy to tell him of the problem but that you can fix it by changing the perpetuity period to the standard 80 years that now applies. The deed being dated 1976 means you can extend it to 2056.

You duly prepare an amending deed, have it executed, then put it back in the strong room with a sigh of relief.