Around the world

Australia

• The Federal Court of Australia (the Federal Court) has deviated from the UK Privy Council’s recent decision concerning priorities between creditors of successive trustees when a corporate or personal trustee becomes insolvent. The Federal Court’s decision in Fotios v Helios Corporation Pty Ltd (No 3)^[1] affirms established Australian law that a former trustee has priority over a subsequent trustee in a competition between trust creditors. However, the appellate courts may yet decide to adopt the pari passu approach taken by the UK Privy Council in Equity Trust (Jersey) Ltd v Halabi and ITG Ltd v Fort Trustees Ltd.^[2] This topic is covered in greater detail here.

Brazil

• In April, Brazil’s government published Provisional Measure No. 1171/23 on the distribution of foreign trust assets. More widely, the measure modifies the rules for taxation of foreign-source income earned by Brazilian residents in financial investments and controlled entities. This is the first time there has been a consideration of trusts in the Brazilian tax system.
• The São Paulo tax authority has, for the first time, asserted that estate and gift tax (ITCMD) is payable on the assets of an irrevocable trust as soon as the settlor nominates a Brazilian-resident beneficiary. The ruling was produced in response to an inquiry from the Brazilian beneficiary of an irrevocable trust formed in December 2017 by capital investment from a foreign company. The settlor was also a beneficiary, and the trust was set up to continue for 150 years unless modified by a later deed.

Canada

• Alberta’s new Trustee Act came into force in February, streamlining the province’s trust laws and requiring trustees to provide annual reporting of the trust accounting to qualified beneficiaries. The beneficiaries can also seek a court order requiring trustees to disclose information related to the terms, administration, assets and liabilities of the trust to the beneficiaries. The court can also now vary or terminate a trust without the consent of all the beneficiaries, and temporary and replacement trustees can be appointed without a court order and unfit trustees can be removed by a majority decision. The Act applies to most trusts created both before and after the enforcement date, although not to an executor who is merely administering an estate.

Hungary

• Hungary’s Act XCII of 2021 on the Registry and Registration Procedure of Legal Persons is scheduled to come into force on 1 July 2023, establishing a unified registry for all types of legal and non-legal persons including companies, foundations and law firms. However, government decrees associated with the Act have not yet been published and a new Bill tabled in parliament proposes to postpone the entry date to 1 January 2026 to provide more time for legal practitioners to prepare for the reforms. It is still subject to parliamentary debate.

Jersey

• A change made on 31 January 2023 to the UK government’s Trust Registration Service (TRS) guidance means that one of the most commonly used trust structures in UK real estate ownership must now be registered on the TRS. Jersey property unit trusts that acquired an interest in UK land on or after 6 October 2020 are likely to be liable to stamp duty land tax, so triggering the registration requirement.
• The Jersey Financial Services Commission (JFSC) is preparing further guidance on amendments to sch.2 to Jersey’s proceeds of crime legislation, specifically exemptions and the transitional period for private trust companies and family offices. The Proceeds of Crime (Amendment No.6) (Jersey) Law 2022 came into force on 30 January 2023, removing all registration exemptions from Jersey’s anti-money laundering (AML) regime and widening sch.2 to include business activities not previously within scope. The JFSC recognises that greater clarity and extra information are needed on the transitional period, which ends on 30 June 2023, and expects to publish the guidance by 28 April 2024.
• On 6 June 2023, the UK Privy Council granted judgment in favour of Jersey’s Attorney General in Fang & ors v HM Attorney General,^[3] a long-running financial crime case regarding the scope of two freezing orders granted by the Royal Court of Jersey.

New Zealand

• The New Zealand government’s 2023/24 Budget raises the trustee tax rate from 33 to 39 per cent, aligning it with the top personal income tax rate for the 2024/25 and later income years from 1 April 2024 for most trusts. The Budget also implements the OECD Global Anti-Base Erosion Rules for corporation tax.

South Africa

• The new s.11A of South Africa’s Trust Property Control Act, effective from 1 April 2023, requires trustees to disclose the beneficial ownership of trusts and to keep this information up-to-date. The new regime will be extended to require trustees to disclose the trustees and beneficiaries of their resident trusts to the South African Revenue Service.

UK

• An inheritance tax (IHT) planning arrangement in which the reversionary beneficiary’s interest in a 150-year Isle of Man trust was assigned to the taxpayer and then re-assigned has given rise to a GBP400,000 IHT charge on his estate. The First-tier Tax Tribunal (FTT) accepted His Majesty’s Revenue and Customs’ argument that Peter Linington’s transfer of his reversionary interest to another trust constituted a transfer of value under s.3(1) of the Inheritance Tax Act 1984, because a reversionary interest in a trust was not excluded property.^[4]
• In March, the UK’s Spring Budget announced the results of last year’s consultation on low-income trusts and estates. From the 2024/25 tax year, trusts, estates and estate beneficiaries receiving income of less than GBP500 will no longer need to pay tax. However, if a settlor has made other trusts the exempt amount is the higher of GBP100 or GBP500 divided by the total number of existing trusts. Discretionary trusts will lose the starting rate band of GBP1,000 and all their income and gains will be taxable at the higher rates.
• Trustees of two Cyprus trusts do not have to pay the legal costs of a litigant who applied for a third-party disclosure order against them in the England and Wales High Court, even though the trustees lost their jurisdictional challenge to the order.^[5] The England and Wales Court of Appeal (EWCA) based its judgment on the Norwich Pharmacal principles that it is reasonable for an innocent third party to seek to protect private information by resisting a court order and the claimant should bear the legal costs rather than the third party, unless the latter has behaved unreasonably. Accordingly, the EWCA allowed the trustees’ appeal and ordered Alexander Gorbachev to pay the trustees’ costs of the jurisdiction application.
• Reporting requirements for the TRS were extended on 1 April 2023. Persons subject to AML regulations are now required to conduct ongoing due diligence throughout a business relationship with a registrable trust, as well as before engaging in the relationship.
• The FTT decided in March 2023 that contributions to a remuneration trust were not deductible from the taxpayer’s taxable profits because they were not made ‘wholly and exclusively for the purposes of the trade’.^[6] The scheme documentation constituted a ‘sham’ dressed up to make things appear other than they were and achieve a tax benefit. However, the FTT found that the pretence fell short of actual dishonesty and there was no attempt to conceal the facts as there would be in the case of evasion.
• STEP’s UK Technical Committee has provided new guidance to assist members in understanding His Majesty’s Land Registry’s approach in relation to Practice Guide 24, regarding private trusts of land. The guidance also deals with the distinction between trusts of the legal estate and trusts of the beneficial interests in land.^[7]
• UK Companies House has changed the rules on how owners and agents of overseas entities that own UK property should provide information about trusts involved in their beneficial ownership. The information must be submitted to the Register of Overseas Entities to allow the entity to buy or sell the property under the Economic Crime (Transparency and Enforcement) Act 2022. Separately, a House of Commons delegated legislation committee has approved the draft Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023. The draft regulations allow an at-risk person’s address to be withheld from the public register even if the risk is not linked to the overseas entity.
• The EWCA has rejected a request from the beneficiaries of an offshore trust to set aside a voluntary disposition of assets on the ground of mistake, because they had adopted a failed IHT avoidance scheme that amounted to a ‘social evil’.^[8]

US

• The US Internal Revenue Service has ruled that the assets in an irrevocable grantor trust do not receive a basis adjustment upon the grantor’s death, if the trust assets have not been acquired or passed from the deceased.^[9] Such assets are not included in the gross estate for federal estate tax purposes. The ruling neutralises an estate tax-planning technique under which a completed gift is made to an irrevocable trust but retains limited powers causing it to be treated as a grantor trust, but not causing the assets to be included in the grantor’s estate.
• A trust company in South Dakota has been fined USD1.5 million by the US Treasury’s Financial Crimes Enforcement Network (FinCEN) for processing over USD4 billion in international wire transfers without adequate checks for suspicious transactions, in violation of the Bank Secrecy Act. The hundreds of unreported suspicious transfers conducted by Kingdom Trust included transactions with connections to a trade-based money-laundering scheme and multiple securities fraud schemes. The civil penalty is FinCEN’s first enforcement action against a trust company.