Shipard v Chief Commissioner of State Revenue
[2006] NSWADT 254
•29/08/2006
CITATION: Shipard v Chief Commissioner of State Revenue [2006] NSWADT 254 DIVISION: Revenue Division PARTIES: APPLICANT
John Charles Shipard
RESPONDENT
Chief Commissioner of State RevenueFILE NUMBER: 066030 HEARING DATES: 22/08/2006 SUBMISSIONS CLOSED: 08/22/2006
DATE OF DECISION:
08/29/2006BEFORE: Block J - ADCJ (Judicial Member) CATCHWORDS: Duties Act - deceased estates MATTER FOR DECISION: Principal matter LEGISLATION CITED: Duties Act 1997
Trustee Act 1925CASES CITED: Cassegrain v Cassegrain & Others [2003] NSWSC 402
Commissioner of Stamp Duties v Livingston [1965] AC 694
CTP Nominees v Commissioner of Stamps [2005] 60 ATR 371
FC of T v Totledge Pty Ltd (1982) 82 ATC 4162
Glen v Federal Commissioner of Land Tax (1915) 20 C.L.R 490
Gonzales v Gonzales [2003] NSWSC 503
Gregory v Hudson (1997) 41 NSWLR 573
Hoare Trustees v Gardner 1978 1 A.E.R. 791
Lord Sudeley v Attorney-General [1897] AC 11
Mc Coughey v Stamp Duties Commissioner (1945) 46 SR 192
Sanders v Chief Commissioner of State Revenue (RD) [2003] NSWADTAP 22
Sanders v Chief Commissioner of State Revenue [2002] NSWADT 251
Whiting v FC of T (1943) 68 CLR199REPRESENTATION: APPLICANT
RESPONDENT
P Freed, solicitor
I Young, barristerORDERS: The decision under review is affirmed
Part A: Preliminary and background
1 The decision under review is the disallowance by the Respondent of an objection by the Applicant against an assessment in an amount of $42255.09 referable to a transfer (referred to as “the Transfer”) of real property situate at 43 Alfred St, Ramsgate (“referred to in this decision as “the house”).
2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997; it also received detailed written submissions by the parties. The terms “AS” and “AFS” refer respectively to the submissions entitled “Submissions on behalf of the Applicant” and “Applicant’s Further Submissions”; the term “RS” refers to the Respondent’s Submissions in Reply. The written submissions were of considerable assistance, more particularly as the only issues are matters of law, and I have drawn on them for the purposes of this decision. In quoting from the Applicant’s submissions, I have deliberately set out the whole or a substantial part of the relevant clause and so as to indicate not only the relevant contention but also the context in which it appears.
3 The facts, which fall with in a narrow compass, are set out in the remainder of this part A. There is no issue of fact between the parties and no oral evidence was required.
4 The late Mervyn Charles Shipard (“the deceased”) died on 1 March 2003; probate of his will dated 21 August 2000 (“the will”) was granted to the Applicant on 23 July 2003 as the executor named in the will. (In accordance with paragraph 4(a) of the will the Applicant was appointed as executor and as trustee).
5 Paragraphs 4(b), 4(c) and 5 of the will read as follows: --
- “(b) If my son JOHN CHARLES SHIPARD survives me by 30 days I give my estate to the John Charles Shipard Trust.
(c)(i) The gift referred to in sub clause (b) is contingent and does not vest unless and until my said son JOHN CHARLES SHIPARD survives me by 30 days; and
(ii) income produced by the gift referred to in sub-clause (b) between my death and vesting accumulates to the gift.”
5. “If my son JOHN CHARLES SHIPARD does not survive me by 30 days, the following provisions apply.
(a) I appoint as my executors and trustees my grandchildren EVAN CHARLES SHIPARD and MITCHELL JOHN SHIPARD.
(b) I give my estate to the John Charles Shipard Trust as set out in Schedule 1.”
6 Paragraphs (1) and (3) of schedule 1 (referred to in this decision as “the schedule”) to the will read as follows
- “(1) I direct that a Trust be established to be known as The John Charles Shipard Trust. I appoint JOHN CHARLES SHIPARD as trustee of The John Charles Shipard Trust during his lifetime and upon his death my grandchildren EVAN CHARLES SHIPARD and MITCHELL JOHN SHIPARD . The Beneficiaries of The John Charles Shipard Trust shall be my child JOHN CHARLES SHIPARD , John Charles Shipard’s spouse, John Charles Shipard’s children and grandchildren and any other person or entity as may be nominated by my trustee, and shall consist of:
- (a) the residue of my estate; and
(b) any income added to the fund from time to time;”
7 On 23 July 2003 the Applicant became the registered owner of the house pursuant to a transmission application under section 93 of the Real Property Act 1900 (dealing 9850431). In that transmission application the Applicant was described as “being entitled as executor of the will of the deceased registered proprietor”.
8 On 18 May 2005 by trustee minute (referred to in this decision as the “Minute”) and in the specific exercise of his discretion as trustee of the John Charles Shipard Trust (referred to in this decision as the “Trust”) the Applicant executed a transfer of the property to himself and his wife, in the following shares:
- the Applicant himself as a beneficiary of the Trust – one quarter as tenant in common
Susanna Shipard (wife of the Applicant and a beneficiary of the Trust although not named otherwise than as the spouse of the Applicant) – two quarters as tenant in common
the Applicant himself and his wife Susanna – one quarter as joint tenants.
9 The Minute is of such importance that its content is included in this decision as follows:
- “Minute of Trustee
I, John Charles Shipard, being trustee of the John Charles Shipard Trust established pursuant to the Will of my late father Mervyn Charles Shipard and pursuant to the powers conferred upon me by clause 3 of schedule 1 of his said Will dated 21 August 2000 hereby make a determination to transfer by way of distribution of capital the property at 43 Alfred St, Ramsgate be in the house in Folio Identifier 31/4/284 by transferring the same as follows:
John Charles Shipard – one quarter as tenant in common
Susanna should part – to quarters as tenant in common
John Charles Shipard and Susanna Shipard one quarter as joint tenants
Dated 18 May 2005”
10 The Transfer was lodged for stamping at the offices of the Respondent under cover of a solicitor’s letter dated 11 of August 2005 and in which it was claimed that the Transfer was made in accordance with section 63 of the Duties Act 1997 (“the Act”) and that accordingly it was liable for stamping at the concessional rate of $10. It was claimed in particular that the Transfer was “made pursuant to the will of the deceased”.
11 The Respondent did not agree that section 63 of the Act was satisfied and issued an assessment in the sum of $42255.09 inclusive of interest. The Applicant objected by notice dated 3 February 2006 and the objection was disallowed on 28 February2006.
Part B: The matter to be resolved
12 The Tribunal must resolve one question only and that is as to whether the Transfer did indeed fall within section 63 of the Act. Section 63 of the Act reads as follows
- 63 Deceased estates
Duty of $10 is chargeable in respect of:
(a) a transfer of dutiable property not made for valuable consideration by the legal personal representative of a deceased person to a beneficiary, being:
- (i) a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or
(ii) a transfer of property the subject of a trust for sale contained in the will of the deceased person, and
(c) a transmission application to a devisee who is also the sole legal personal representative.
13 It will be noted that under paragraph 4(b) of the will the estate of the deceased was bequeathed (if the Applicant survived the deceased by 30 days and which in fact occurred) to the Trust. Paragraph 5 of the will provided for the possibility that the Applicant might not survive the deceased by 30 days. In that event the deceased’s grandchildren were appointed as executors and trustees but the estate was nevertheless bequeathed to the Trust set out in the schedule.
14 There are two oddities in respect of the will. In the first place the Trust was defined by reference to the schedule in paragraph 5 of the will, but not in paragraph 4 of the will. In the second place a trust is not a juristic person. A trust arises, in general terms, where there is an equitable obligation by a person who becomes the legal owner of any property to account for that property to the beneficiary or beneficiaries entitled to it. A trust arises in equity and not (notwithstanding contentions to the contrary by Mr Freed) through the common law. A trust can be express or implied and need not be in writing. A trust can arise as a matter of law; constructive trusts and resulting trusts are examples. An obligation of a fiduciary nature can arise where there is no such reference to a trust in any relevant document.
15 In accordance with the Trustee Act 1925 (NSW) “legal representative” means “executor or administrator”; “trustee” “has a meaning corresponding with that of trust and includes legal representatives”; see also in this context Cassegrain v Cassegrain & Others [2003] NSWSC 402 and in particular the concluding part of clause 20.
16 An executor is in any event a trustee because in relation to an asset specifically bequeathed he must deliver it to the beneficiary to whom it was bequeathed; where in a will the testator appointed both and executor and a trustee the trustee will have a fiduciary obligation to account for the residuary estate or residue to the beneficiary or beneficiaries entitled to it, and when the administration of the estate, a function to be performed by the executor is complete. In respect of the will, I propose to assume that in respect of paragraphs 4 and 5 the will provided in clear terms for a bequest of the residue of the estate to the trustee for the time been of the John Charles Shipard Trust, and being the Trust established on the death of the deceased upon the terms and conditions set out in the schedule. The Respondent referred the Tribunal, in this as context, to the form of wording employed in Gregory v. Hudson 41 NSWLR 573 at 574-5 follows:
- “I give devise and bequeath to my Trustees [my residuary estate] upon trust … to hold such residue upon the trusts” specified in a deed of trust...
17 Clauses 22, 23 and 24, (excluding in the case of clause 24 the last sentence) of RS read as follows:
- 22. The elements of sec 63 are thus:
(a) a transfer of dutiable property;
(b) by the legal personal representative;
(c) to a beneficiary;
(d) being a transfer
- (i) made under, and
(ii) in conformity with
(iii) the trusts contained in the will.
(a)“by the legal personal representative”;
(b)“to a beneficiary” under the will;
(c) which transfer is “made under and in conformity with the trusts contained in the will”; and
(d) it is not enough that what is done is merely permissible or not unlawful according to the terms of the will.
24. The Commissioner contends, in summary form, on its proper analysis, what has occurred here is as follows:
(a) the Applicant was appointed as executor of the will;
(b) the Applicant performed executorial duties, including, calling in the assets and paying funeral and testamentary expenses, and discharging the liabilities of the deceased;
(c) at some point, the Applicant completed his executorial duties and became a trustee of the deceased estate;
(d) the Applicant was then, the trustee of the assets of the deceased estate for the beneficiaries named under the will;
(e) the only beneficiary named as the residuary beneficiary, albeit inelegantly and incorrectly, under the will is “the John Charles Shipard Trust”;
(f) the correct description of the residuary beneficiary should have been in the following terms “I give my estate to the Trustee of the John Charles Shipard Trust to be held on the terms of that trust”;
(g) the Applicant, now as trustee of the deceased estate, then held whatever interest he had in the estate assets, for the residuary beneficiary, namely, the trustee of the John Charles Shipard Trust;
(h) that residuary beneficiary did not himself hold full ownership rights, but rather held whatever property he had on the terms of a further trust, namely, the John Charles Shipard Trust;
(i) the trustee of the John Charles Shipard Trust then properly considered and exercised his various discretions as to:
- A the class of discretionary beneficiaries, that is, whether it should be enlarged;
B whom from that class of beneficiaries should be the subject of provident and bounty;
C .in what shares and what manner, the trust capital should be distributed;
(k) the transfer pursuant to the exercise of the discretions under the discretionary trust is extraneous to, and at least, one step removed from the trusts contained in the will.
18 A number of contentions made by the Applicant are not accepted by the Respondent; they are referred to in succeeding clauses contained in this Part C. Emphasis has been added by the Tribunal to indicate the key aspects.
19 Clause 8 of AS reads as follows:
- Moving to the first bullet point there is the clear statement that Mr. Shipard is a beneficiary in his capacity as trustee of the testamentary trust.
A trustee cannot be simply described as a "beneficiary". The role of trustee is one that pre-dates the Statute of Uses in mediaeval England, is supplemented by Statute (The Trustee Act) and enforced by the equity courts. In accordance with their trust obligations, trustees hold trust assets for the beneficiaries. Their roles are legally quite distinct and a statement such as the one above is simply and plainly wrong.
In the opening chapter of the standard work on trusts "Jacobs Law of Trusts in New South Wales" the author talks about the nature of a trust. He says:
"There are four essential elements present in every form of trust -
The Trustee
First there must be a trustee who holds a legal or equitable interest in the trust property. ...
The Trust Property
The second essential element is that there should be property capable of being held on trust. ...
The Beneficiary
Thirdly there must be a cestui que trust or beneficiary. The trustee himself may be one of the beneficiaries, but he cannot be the sole beneficiary....
A Personal Obligation Annexed to the Property
The fourth essential is that the trustee must be under a personal obligation to deal with the trust property for the benefit of the beneficiaries, and this obligation must be annexed to the trust property."
20 Clause 9 of AS reads as follows:
- Clearly John Charles Shipard is a trustee. He is named as such in the will. He is also one of the beneficiaries and so is his wife Susan Shipard. The trust assets comprise the whole of the estate of Mervyn Charles Shipard. There is no other trust than that contained in the will. We strongly suggest that it is incorrect to say that Mr. Shipard is a beneficiary in his capacity as trustee. He is in fact one of the beneficiaries of the testamentary trust and also the trustee.
By way of illustration consider the type of testamentary disposition used in thousands of wills each day -
"I appoint my son John as my trustee and I give my estate upon trust for such of my 3 children who reach the age of 21 years".
I have never before heard it suggested that John must pay duty on a transfer to himself because he is the trustee. Nor have I ever seen a subsequent transfer to the surviving children stamped at ad valorem duty.
The obligations of an executor are set out in the Wills Probate & Administration Act. Essentially they are to get in the assets, pay all debts and distribute the estate to beneficiaries. Often executors become trustees of the assets when their executorial duties end as additional obligations are imposed upon them by trusts created under the will and by legislation. Ultimately however the assets must find their way to the hands of the beneficiaries. Both the Duties Act and its predecessor the Stamp Duties Act recognise the right of a beneficiary under a will to have the estate assets transferred to him or her without the imposition of stamp duty.
To do so the beneficiary must fulfill the requirements of Section 63 and we say that those requirements have been clearly fulfilled in this case.
21 Clause 10 of AS reads as follows:
- The assessment refers to the decision of Young J. in Gregory v Hudson (1997) 41 NSWR 573 . That decision does not deal with stamp duty issues at all but rather with the principles of delegation of testamentary authority. In that case the testator left his residuary estate on trust to transfer it to the trustee of an existing inter vivos trust.
The assessment provides no support for the statement that the principles in this case are relevant The OSR internal memo says:
- "according to his honour, such a bequest takes effect as a primary trust and a sub-trust, ie the executors and trustees of the will hold the assets comprising the residuary estate on trust for the trustees of the discretionary trust, who, in turn, hold their beneficial interests in these assets under the primary trust (the residuary bequest) on trust for the beneficiaries of the discretionary trust."
The case is irrelevant to this assessment. No stamp duty principles are discussed or even alluded to.
22 The first four bullet points after “The assessment is flawed in the following respects” at page 5 of AS read as follows:
- It suggests that the position of John Shipard as trustee of the assets is somehow different to the situation of hundreds of thousands of other testamentary trustees appointed each year in New South Wales.
It contends that he, in his capacity as trustee, is a beneficiary of the estate assets. This is simply erroneous in law.
It attempts to draw a parallel with the facts of a case where the beneficiaries and trustee of an earlier inter vivos trust were involved and where Section 63 could clearly have no application. The case itself has nothing to do with stamp duty law and contains no relevant ratio, obiter dicta or discussion of principles relevant to these present facts.
The conclusion of the assessment letter is: "If John Shipard was to take a transfer of the house now it would be in his capacity as ONE of the beneficiaries of the trust, not as the devisee of the house under the will (which Section 63(a)(i) of the Duties Act 1997 requires)."
23 Clause 8 of AS included above contains an example cited by the Applicant; another example also cited by him appears in clause 1 of AFS as follows:
- The Commissioner, in his introductory remarks to his submissions in reply', suggests that this matter is somehow complex and unusual. The applicant contends that is not the case. The deceased Mr. Shipard was a pensioner. He owned a house in which he lived, had a credit union account of $120,000 and a modest life policy. His family consists of his only son, John Shipard, his daughter-in-law Susan Shipard and his two grandchildren.
The Commissioner contends there is confusion because John Shipard fills separate legal roles. With respect, modern wills almost universally bear that character. For example a simple devise such as:
- "I give my home to such of my wife and infant children as my wife in her absolute discretion determines and appoint her as my executrix and trusted".
24 The issue raised by clause 8 of AS is referred to as the “trustee as beneficiary” issue. The issue raised by clause 9 of AS is referred to as the “no other trusts” or “there is only one trust” issue. The issue raised by clause10 of AS is in fact part of the “no other trusts” issue and is dealt with accordingly. The issue raised by page 5 of AS fits best into the “trustee as beneficiary” issue and is dealt with accordingly. The nature of the Applicant’s submissions is such that there is some degree of overlap.
25 Clause 9 of AS raises another relevant issue. The Applicant contended that he and his wife are beneficiaries under the will, whereas the Respondent contended that they are not; the Respondent contended moreover (a contention disputed by the Applicant) that the only beneficiary under the will was the Trust. This issue is dealt with under the “trustee as beneficiary” head.
26 The Applicant in his written submissions referred to two specific examples; one of them is, as aforesaid contained in clause 8 of AS and the other in clause 1 of AFS both quoted previously. They are collectively referred to as “the examples”. It is convenient at this point to note that the Respondent agreed that in respect of each of the examples nominal stamping under section 63 would apply.
27 The Respondent described the elements of section 63 of the Act in clause 23 of RS which has been quoted in full previously in these reasons. In the course of oral submissions, Mr Young noted that section 63 of the Act contains one additional element and that is that the transfer must not be made for valuable consideration. There is no such issue in this matter.
Part D: The various roles of the Applicant.
28 Before dealing specifically with the issues it is relevant to note that the Applicant was appointed to fill a number of different roles. He was appointed as executor under the will; he was also appointed as trustee under the will. He was appointed as trustee of the Trust; in that capacity he was given the power to nominate any other beneficiaries of his choosing. In this capacity he had the power to deal with the estate bequeathed to the Trust and both as to capital and income in any manner chosen by him. In addition the Applicant was one of the class of beneficiaries nominated in the schedule in respect of the Trust. (The Applicant contended that he was also a beneficiary under the will but that contention was disputed by the Respondent). As Mr Young noted in oral submissions the powers given to the Applicant as trustee of the Trust allowed him to appoint assets to one or more beneficiaries of the Trust in such manner as he thought fit, and in particular in such proportions as he thought fit. In fact and in relation to the house, the Applicant pursuant to the Minute awarded it to himself and his wife in the proportions set out in the Minute.
29 It is perhaps of some relevance to note that the Applicant’s wife is not referred to by name in the will; however she is included by the reference to “John Charles Shipard’s spouse”. That appellation could of course apply to any woman to whom he is at any time married. As I have indicated the house was in fact awarded to the Applicant and his wife Susanna Shipard, in various shares as specified in the Minute. (Mrs. Shipard is mentioned in the documents in a variety of different spellings and forms and I propose to assume that the spelling of her first name contained in the Minute is correct.
30 I use the term “estate” in this decision so as to encompass the residue of the estate; references to “the estate”, “the residue of the estate”, and “the residue” should be construed interchangeably. There was no evidence before the Tribunal as to when the administration of the estate was completed and more particularly the amount involved. The section 58 documents include an inventory and also a supplementary inventory which indicates that the house was the major asset but that there were in addition significant assets consisting of a bank account ($120000) a life policy ($66706.60) and 1309 shares in AMP (having as estimated value of $9163) (Tab 1 of the section 58 documents).
31 The fact that the Applicant was appointed to fill so many differing functions and positions did perhaps result in some degree of confusion. In relation to each relevant act by the Applicant it is necessary to determine that position occupied by him relevant for the particular purpose.
32 During the course of submissions Mr Freed was asked to assume a hypothetical proposition. Under that hypothetical proposition the Applicant, using his power to appoint additional beneficiaries of his choice, appointed two or three natural persons (not members of his family and strangers to the deceased) or a property developer company as beneficiaries of the Trust. He was asked whether in these circumstances a transfer of the house to those persons would be claimed to be within section 63 of the Act. He answered that such a transfer would not fall within section 63 because it would have been made pursuant to a resettlement. The Tribunal does not agree but it is unnecessary to canvass this aspect further.
Part E: Other aspects of a general nature
33 It is only when an estate has become fully administered that a residuary beneficiary has a present right of property in that estate. Prior to the estate being fully administered, a residuary beneficiary has a right to have the estate duly administered, even though he does not have a right of property and no ownership of any of the underlying assets. See Lord Sudeley v Attorney-General [1897] AC 11; Commissioner of Stamp Duties v Livingston [1965] AC694; Gonzales v Gonzales [2003] NSWSC 503; Glen v Federal Commissioner of Land Tax (1915) 20 C.L.R 490; CTP Nominees v Commissioner of Stamps [2005] 60 ATR 371.
34 It can be a difficult question as to when the transition point of full administration is reached. His Honour Rich J observed in Whiting v FC of T (1943) 68 CLR199 at 206 that, “the change from executorship to trusteeship invariably took place in the dead hours of the night” and Jordon CJ in McCoughey v Stamp Duties Commissioner (1945) 46 SR 192 at 206 that “the exact moment of passage from one character to the other is difficult to define”.
35 When the administration of the estate is complete a change in the role of executor occurs. “Generally speaking, unless the testator appoints another as trustee, the legal personal representative on completion of administration, that is, of the functions peculiar to the office, becomes the trustee of the any assets remaining in the estate.” (Certona; The Law of Succession in New South Wales 3rd edition at p287)
36 By the will the Applicant was appointed the executor, being the person to whom probate is granted. As such the general duties of the executor are:
- “The duties of administration which an Executrix is required to perform include ascertaining what are the assets of the deceased, getting in those assets, ascertaining what are the liabilities of the estate, discharging those liabilities, apportioning the burden of payment of liabilities among the beneficiaries, keeping accounts and proper records of all dealings with the assets and liabilities of the estate, delivering accounts to those entitled to them, and distributing the net assets of the estate to the people entitled to receive them.”
See Gonzales (supra) and Certona at pa 283.
37 In accordance with the Trustee Act, the executor under the will (and also the trustee under the will) is a legal personal representative. It will often be the case that under a given will the same person is appointed as executor and trustee. To make over an asset specifically bequeathed is a function of the executor and he does so in a fiduciary capacity; that is so because equity obliges him to do so. In respect of the will there were no assets specifically bequeathed.
38 The transfer over of the residue to the residuary beneficiary is a function performed by the trustee. If there is no trustee appointed under the will such a function would be performed by the executor; in either event the obligation is fiduciary.
Part F: The trustee as beneficiary issue
39 The Applicant in his written submissions disputed the proposition that the residuary beneficiary was the Applicant in his capacity as trustee of the Trust. That proposition is contained in clear terms in the Applicant's written submissions.
40 The Respondent contends (correctly) that the residuary beneficiary under an estate which has not been administered only has a right to due administration and has no right of property in the estate assets; Lord Sudeley, Glen, Livingston and CTP (supra); and that upon completion of administration the executor is transformed into a trustee of any assets remaining in the estate; (Whiting and McCaughey supra)
41 The Applicant’s contention that the beneficiary of one trust (a head trust) cannot hold his entitlement as trustee of another trust (a sub- trust) is clearly incorrect. It was described as misconceived in FC of T v Totledge Pty Ltd (1982) 82 ATC 4168 at 4175 where section 97 of the Income Tax Assessment Act 1936 brought to tax income of “a beneficiary of a trust estate who is … presently entitled to a share of the income of the trust estate”. In Totledge, the “beneficiary” in question was the trustee of another trust. Bowen CJ, Deane and Fitzgerald JJ said:
- It was not argued, on behalf of the Commissioner, that the fact that any entitlement of the Scheme Trustee was in the capacity of trustee of a separate trust in itself precluded him from being a beneficiary presently entitled to income of the trust estate for the purposes of sec. 97 of the Act. Any argument to that effect would, in our view, have been misconceived. The fact that the Scheme Trustee held his interest in the trust estate in the capacity of a trustee of a further trust is irrelevant to whether the whole or part of the net income of the business trust should have been included in his assessable income as such trustee.
42 Further, the Court continued at page 4177:
- “the fact that the Scheme Trustee’s entitlement was as Trustee upon the various trusts upon which he held the Scheme Fund neither alters the nature of the taxpayer’s position as trustee nor justifies a denial … of the Scheme Trustee’s position as a beneficiary of the relevant estate.”
43 Similarly, in Hoare Trustees v Gardner [1978] 1 A.E.R 791 at 810 it was held the “beneficiary” was not required to be an absolute owner with a title good against the world, but rather, against his trustee only. Such “beneficiary” can, in fact, hold his interest under a further trust.
44 The residuary beneficiary here, contrary to the Applicant’s written submissions, was the Applicant in his capacity as the trustee of the discretionary trust, i.e. “the John Charles Shipard Trust”.
45 It may be noted that in written submissions the Applicant criticised Totledge on the basis that it was simply a tax case. See clause 6 of AFS as follows:
- At paragraph 42 the Commissioner seeks to rely on income tax law and cases to support his argument. With respect, these have no relevance to this situation. Under s.97 of the Income Tax Assessment Act 1936 the court is dealing with tax liability on assessable income. Once income has been derived tax consequences follow. For the purposes of that section "beneficiaries" are taxed and trustees of a trust estate can be "beneficiaries" for that purpose. The section specifically says so'. Just as income for tax purposes and trust purposes are different concepts, so too it is possible to categorise a trustee as a "beneficiary" for tax purposes but that has no relevance to trust law.
46 As will have been noted the Applicant contended in clause 6 of AFS that “For the purposes of that section beneficiaries are taxed and trustees of a trustee estate can be beneficiaries for that purpose. The section specifically says so.” The Applicant referred in this context to section 97(2) (a) (iii) of the Income Tax Assessment Act 1936. That contention was misconceived. Section 97(2) (a) (iii) was inserted into the legislation after the decision in Totledge.
47 It is abundantly clear then that as a matter of law there was only one residuary beneficiary of the estate and that beneficiary was the Applicant in his capacity as trustee of the Trust. It follows of course that neither the Applicant nor his wife was a beneficiary under the will.
Part G: The no other trusts issue or the only one trust issue
48 The Applicant contended that there was no trust other than the trust contained in the will. The Applicant, by his written submissions attempted to distinguish the decision of Young J. in Gregory v Hudson on the basis that it is “irrelevant” and that “no stamp duty principles are discussed or even alluded to” and it involves an “inter vivos settlement”. The Respondent went on to say in clauses 47 to 51 (and with all of which I agree) of RS that:
- 47. What is important from decisions of superior courts are their principles. The principle from Gregory v Hudson is clear.
48. The terms of the will in Gregory’s case are set out in paragraph 9(d) infra. In summary, the executors and trustees of the will were directed to hold the residue for and on the trusts of a pre-existing inter vivos discretionary trust. The point of principle from Gregory v Hudson is that “the testator intended a trust and sub-trust rather than merely empowering the trustee of his will to make a distribution”.
49. So too here. The deceased, by his will, appointed an executor and trustee of the will, who like that in Gregory, was not empowered to select beneficiaries and distribute assets.
50. Rather, the residuary beneficiary was the trustee of the discretionary trust - “the John Charles Shipard Trust”. It was that trustee, albeit the Applicant in another capacity, who had the power to nominate additional beneficiaries, make a selection from that class of beneficiaries and make capital distributions in whatever shares and interests he thought appropriate.
51. One might ask the rhetorical question, by what authority did the transferees in their respective qualitative interest and quantitative share, take their transfer? The trustee minute makes clear what the written submissions deny: the transferees were selected by the Applicant as “trustee of the [discretionary trust]” and took “pursuant to the powers conferred upon [the Applicant] by clause 3 of schedule 1”.
49 The fact that in Gregory v Hudson there was a pre-existing trust whereas the Trust in this case was constituted under the will does not give rise to any relevant difference. The fact remains that the trustee under the will had the fiduciary obligation when administration was complete to transfer the estate to the Applicant as trustee of the Trust.
50 The Minute sets out in clear terms that the Transfer was made in accordance with the exercise by the Applicant as trustee of the Trust of his discretionary powers under the Trust; (he did not have discretionary powers of that nature as executor or as trustee under the will). This being so the Transfer was not made (as required by section 63 of the Act, by the legal personal representative of the deceased and it was not made in favour of a beneficiary under the will.
51 It is clear as a matter of law that the executor was charged with fiduciary trust functions; so too (and even more relevantly) was the trustee under the will inasmuch as he was obliged on completion of administration to transfer the residue to the trustee of the Trust. It is those functions (the trusts contained in the will) which are encompassed by section 63(a)(i) of the Act. The trusts referable to the Trust are (notwithstanding the fact that its terms are written in the will) different from the trusts under the will and are not within section 63(a)(i) of the Act.
Part H: The Transfer was not inconsistent with the will
52 This aspect is dealt with in the interests of completeness although it is not clear to me (despite comments in the Applicant’s written submissions to the contrary) that the Applicant persists with it. However so much time was spent on it that it deserves some mention and even though its relevance appears to me to be marginal.
53 The Respondent drew my attention to a decision by me in Sanders v Chief Commissioner of State Revenue [2002] NSWADT 251 (affirmed by the Appeal Panel of this Tribunal as Sanders v Chief Commissioner of State Revenue (RD) [2003] NSWADTAP 22) and in which clause 14 (relevantly reads: 14 The commentary on section 63 of the Act in Hills Duties Legislation provides (at page 1431) that: The commentary then proceeds:
- "The transfer must be both under and in conformity with the trusts upon which the property is held. It is not sufficient that the transfer not be inconsistent with those trusts. Where there has been a family arrangement to vary the trusts of a will, a transfer to give effect to that arrangement will not be a transfer under and in conformity with the will".
54 It is clear then that the Applicant as trustee of the Trust was given wide powers and including the power to appoint additional beneficiaries. Because he himself is one of the beneficiaries under the Trust (but not the will) and because the Trust is a discretionary trust he had the power to appoint the whole of the estate to himself. In respect of the house which formed part of the estate the Applicant, as he was entitled to do, appointed it to himself in part and in part to his wife Susanna.
55 The Applicant cannot succeed for three reasons in particular. The Transfer was not made by the deceased’s legal personal representative; it was not made in favour of a beneficiary under the will; and it was not made under the trusts of the will. The Minute indicates in the clearest possible terms that it was made under different trusts; it might be noted by way of example that it refers in the clearest possible terms to an award of the house as a distribution of capital out of the Trust.
56 I have referred in this decision to a number of decided cases; others were referred to but I do not consider it necessary to cite them.
57 Accordingly and in the circumstances the decision under review must be affirmed.
0
5
2