QLD Executor of Will Investing Beneficiary Trust in Own Name

[Gypsy19811981]

Hi there. I live in Queensland. My daughter is only 11 years old but when she was born her great grand father had left her 5% of his estate to be held in trust until she turns 18. The executor has been ínvesting' the money but I believe she is doing the wrong thing for many reasons.
Firstly - the investment is not in a trust but in an investment under the executors name. (Which by the way will be frozen in the event of her death until my daughter turns 18 when it will be vested to her, which means no-one else can invest or manage the trust if this women was to die).

Secondly - it is my understanding that under Australian Tax Office Law if a minor inherits money by way of a deceased estate she is no longer taxed as a minor but at the ordinary marginal rates which means the investment could earn up to $18,500 before she would need to pay tax. However, the fund is locked into a 10 year investment bond - this is a tax paid bond that is paying 30% in tax on behalf of the policy holder. Meaning that the growth is being diminished by 30% every year.
Thirdly - It is my understanding that an executor is required to lodge tax returns on behalf of the trust each year but she has not been doing this. And that she should be keeping the beneficiaries informed but we have not received a statement or tax return or any other communication for our daughters investment since 2007. It was only because I started to do some poking around with the ATO (getting my daughter to call up using her Tax File Number to ask for her end of year tax statements that we learnt about any of this).

Finally - is it true that when you begin investing someone else's trust fund that you should seek advice on setting up a trust, an accountant for tax advice and financial advice. And if she hasn't and we can prove that it has been mismanaged that the executor can be held liable for any tax losses, interest losses and investment losses?

 

[Sophea]

Dear Gypsy19811981,

Obviously my knowledge of the situation you have described above is limited, and therefore please excuse any incorrect assumptions I may make.

I'm not sure what you perceive to be the difference between a 'trust' and an 'investment', but the trust is not a specific type of account or investment, it is mere the creation of a set of legal rights and obligations whereby one person as trustee is obliged to deal with property for the benefit of the beneficiary. The Trustee is the legal owner of the trust property and may therefore invest the property in their own name.

(Which by the way will be frozen in the event of her death until my daughter turns 18 when it will be vested to her, which means no-one else can invest or manage the trust if this women was to die).

I am not sure where you got this information from but, generally the trust deed or the will should set out what will happen if the trustee dies, but if not usually where there are joint trustees, the surviving trustee will take over as a sole trustee and if it is a sole trustee that dies, the executor of their estate may assume the role of trustee, so there should never be a situation where invested funds are just sitting there without anyone to administer them for the benefit of your daughter.

With respect to your second query, one of the primary duties of the trustee is to take reasonable steps to preserve and secure the best financial returns for the trust assets . If they fail to discharge this duty they can be held liable to the beneficiary for any losses they incur to the trust assets. The court also has the power to appoint a new trustee in certain circumstances. If you are convinced that the trustee is not carrying her duties properly, then you should seek legal advice as to your options.

Trustees are required to lodge tax returns each year on behalf of the trust. If the trustee is not doing this then, again, seek legal advice.

 

[Sarah J]

Dear Gypsy19811981,

Under Wills and Probate law, a minor (i.e. someone under 18) cannot receive testamentary estates (i.e. gifts left to them under a Will). Therefore, the gift will be generally held on trust by a trustee (in this case, the Executor) in favour of the minor as the beneficiary (i.e. recipient of the trust) until they reach 18.

As Sophea already explained, a trust is a legal relationship/creation where the legal interest and the equitable interest is split between two types of people. The legal interest goes to the trustee. This means that the trustee, Executor in this case, legally owns the trust assets. In other words, trust assets are transferred to and held in the name of the Executor. However, the equitable interest belongs to the beneficiary, your daughter. This means that the Executor only holds (and also deals with) the trust asset in favour of your daughter, until she attains the age of 18.

Generally, a Will that creates a trust, gives the trustee power to manage the trust account and invest in things at the discretion of the trustee as long as the trustee acts in the interests of the trust account and beneficiary. There is no further requirement that the trustee must be advised by an accountant or someone experienced in investing, unless the Will itself expressly has this requirement. Generally, the Will, or statute, will allow the trustee to withdraw money from the trust account to meet immediate expenses. The trustee is compensated and indemnified for acting as a trustee. Where this compensation and indemnity comes out of will depend on the Will, first of, and if the Will is silent on the matter, the trust account and the residuary estate.

I am not too familiar with taxation law in relation to trusts created under Will ("testamentary trusts"). However, trustees are generally required to file a tax return and pay tax on any income earned by the trust assets (the principle). If the trustee is not doing this, speak with a legal advisor or the ATO.

 

[Gypsy19811981]

Dear Gypsy19811981,
Thank you for clarifying some things for me. Just one more question -
The Trustee is the legal owner of the trust property and may therefore invest the property in their own name. -

but should it not say (trustees name) ATF (beneficiaries name) on the documentation? In this case there is no mention of the beneficiary on the statement.

 

[Sarah J]

The trustee and the beneficiary should be named in the Will. The trustee cannot deal with trust property in their own benefit, only in the interest of the beneficiary. Any mismanagement will be handled under trust law and the beneficiary has a right to sue the trustee and ask the trustee to personally account of any benefit/misuse. the trustee should be investing under the trust name but any taxation lodged will be by the trustee and taxed personally.