Around the world

Australia

• The Australian Taxation Office is to appeal against the Administrative Appeals Tribunal’s decision in favour of the taxpayer in the Bendel case,^[1] concerning loans made to trusts and unpaid present entitlements.

Canada

• The Canada Revenue Agency has updated its guidance on the mandatory disclosure rules enacted in June 2023. At the same time, the Minister of National Revenue published the first list of designated notifiable transactions under the new rules, with adverse effects for ‘substantially similar’ transactions, one of which relates to avoidance of deemed disposal of trust property.
• The Superior Court of Justice of Ontario has exercised its authority under the Trustee Act to remove an estate executor. Although the court reaffirmed that it would remove an executor only ‘on the clearest of evidence that there is no other course to follow’, it found that the estate trustee in question had allowed animosity to prevent him from acting properly as an estate trustee. Further, it said, he had not been ‘honest and forthright’ in his handling of the estate.^[2]
• Bare trusts with a 31 December 2023 year-end will be the first to submit annual returns under Canada’s new T3 rules on beneficial ownership of trusts. Returns are due by 31 March 2024 even if there is no income to report. The rules define ‘settlor’ as any person who has contributed property to the trust except by commercial loan or arm’s-length transfer for value. This makes it necessary to report information regarding parties who previously interacted with the trust, as well as prior owners.
• The Superior Court of Justice for Ontario has removed a sister as co-trustee of her father’s estate, after her brother (another co-trustee) brought an application regarding her conduct. The court found that Elke Kasanda’s ‘personal interests and grievances’ prevented her from acting impartially as trustee and that such conduct was likely to continue if she continued in the role. In considering the case law, the court noted that ‘dissension and animosity amongst co-trustees has been held to justify removal, even without any finding of misconduct’.^[3]
• The Court of Appeal for Ontario (the Court of Appeal) has examined its ability to overrule a lower court in a case relating to the passing of trust accounts. A trial in the Superior Court of Justice of Ontario had found that two parents (the appellants) had failed to discharge their duty as trustees to account for almost 40 per cent of their son’s trust fund. The appellants brought the case to the Court of Appeal, which noted on five separate occasions in its ruling that the decision of the lower court was entitled to ‘deference’. The appeal was therefore dismissed.^[4]

Cayman Islands

• The trustee of three Cayman Islands trusts has obtained a court order under s.64A of the Cayman Islands Trusts Act (2021 Revision) to unwind errors with adverse tax consequences.^[5] It is the first published decision applying this relatively new amendment. Read more on page 9.

Jersey

• The Jersey Financial Services Commission has issued new guidelines on how private trust companies should interpret the new Schedule 2 regime for registering under the anti-money laundering supervision regime. The deadline for entities to register was 30 September 2023.

Singapore

• The High Court of Singapore has held that a stablecoin pegged to the US dollar qualifies as property of the chose-in-action type, so that a constructive trust can be imposed over any misappropriated coins.^[6] The case concerned a company’s attempts to recover Tether coins fraudulently appropriated by an employee of its payroll services provider. It echoes similar developments in other common-law jurisdictions, where some courts have held that cryptocurrencies are a form of property capable of being held on trust.

South Africa

• Enforcement proceedings against South African entities not compliant with the new beneficial ownership reporting regulations began on 1 October 2023, according to a public notice issued by the Companies and Intellectual Property Commission. The regulations were introduced in April 2023 by amendments to the Companies Act, the Financial Intelligence Centre Act and the Trust Property Control Act. They apply to companies, close corporations, trusts and non-profit companies.

UAE

• The United Arab Emirates (UAE) has enacted Federal Decree-Law No. 31/2023, establishing a newly developed regulatory framework for the administration of trusts within the UAE, including increased transparency. It grants recognition to trusts in all Emirates (excluding financial free-zones) irrespective of the location of the trust’s assets, where previously only trust arrangements solely within an onshore UAE legislative system were recognised. A system for the official registration of trusts has been established, including the issuing of a validity certificate and an incorporation certificate by the adequate authority.

UK

• The Scottish Parliament’s Delegated Powers and Law Reform Committee has published a report welcoming the Trusts and Succession (Scotland) Bill. It asks for some of the Bill’s provisions to be strengthened, notably regarding trustees’ powers to make environmental, social or ethical investments, their duty to keep beneficiaries informed and provisions to prevent people acting as executors for those they are accused of killing. It also suggests further consideration on incapacity and the position of separated spouses or civil partners in intestate estates.
• A charitable fund set up by banker Gaspard Farrer in 1928 to help pay off the UK government’s World War I debts should now be given to Her Majesty’s Treasury and applied to reduce the current national debt, the England and Wales Court of Appeal (the Court) has ruled. Zedra Fiduciary Services, which manages the fund, argued that the money would be better spent on general charitable purposes as it now has no chance whatsoever of achieving its initial object. However, the Court ruled that paying off the national debt is a charitable purpose more closely aligned with that specified by Farrer.^[7]
• The enactment of the Economic Crime and Corporate Transparency Act 2023 on 26 October 2023 brings a significant shake-up of the reporting requirements for the UK’s register of overseas entities, particularly for entities connected with trust structures.
• STEP has published the third edition of its STEP Standard Provisions,^[8] updated for 2023, which provide non-technical clauses for practitioners to include in wills they prepare. There are provisions that cover the law of England and Wales and Northern Ireland respectively. The third edition is divided into two parts: the Standard Provisions, which it is considered might reasonably apply to all wills and trusts; and the Special Provisions, which may be beneficial in the administration of some wills and trusts, but not all. To assist practitioners, STEP has developed a Toolkit and FAQs, as well as an overview for clients.
• Provisions of the Charities Act 2022 that were originally scheduled to come into force in England and Wales in 2023 have been delayed until 2024. They include ss.29 and 31 relating respectively to appointments and remuneration of charity trustees. Sections 15 and 16 regarding trustees’ powers to make ex gratia payments are still under further consideration prior to commencement.
• A corporate trustee of three trusts that hold USD81 million bearer bonds whose issuer went into liquidation more than 30 years ago has been granted court permission to void the bonds unless presented for payment within two years of the judgment, because of the difficulty of tracing unidentified bondholders. The trustee has already advertised for these bondholders. The England and Wales High Court has ruled that the small probability that they will come forward now does not justify the costs and expenses being incurred in administering the trusts.^[9]
• The First-tier Tax Tribunal (FTT) has upheld Schedule 24 ‘failure to take reasonable care’ penalties imposed on Delphi Derivatives for using an employee benefit trust scheme after taking advice from an acknowledged expert on the subject. The expert’s advice to Delphi, though suggesting the scheme was likely to be effective, had also identified some risks and had suggested seeking further opinion from counsel. The fact that the company did not do this meant it ‘fell short of the standard of being a prudent and reasonable taxpayer’, said the FTT.^[10]
• The England and Wales High Court has been called on to resolve a problem resulting from NatWest Bank’s decision to divest itself and its subsidiaries RBS and Coutts of all their trusteeships and trust administrations in 2019. The following year, almost all the trusteeships were transferred to a new trust company called Ludlow and letters were sent out seeking consent from holders of powers of appointment under these trusts. However, by 2023, 61 trusts governed by the law of England and Wales had not provided a deed of retirement and appointment or been wound up. The High Court has now exercised its discretion under s.41(1) of the Trustee Act 1925 to authorise the change of trustees to Ludlow and order the vesting of land and other property in the company.^[11]
• Companies House has added a function to the register of overseas entities reporting portal so that overseas entities with trust information can now file their update statement online. This includes trusts that the entity has already reported. However, trustees cannot use this service if any beneficial owners or managing officers have their personal information protected from public view or are waiting for the results of a protection application. An update statement must be filed every year by all overseas entities on the register, even if nothing has changed.
• The latest official figures on trusts give the total income of trusts and estates in the tax year ending 2022 as GBP3.075 billion, marginally above pre-COVID-19 pandemic levels. Capital gains tax payable in the same year increased to GBP1.055 billion, 27 per cent above the previous year. Some 633,000 trusts and estates had registered on the Trust Registration Service (TRS) by 31 March 2023. The total number of trusts and estates that have made self-assessment returns has continued to decline, reducing by 3 per cent to 141,500 in the tax year ending 2022.
• The manual for His Majesty’s Revenue and Customs’ (HMRC’s) TRS was amended several times in September 2023. Extra content has been provided on excluded express trusts held on behalf of minor children, corporate personal representatives and letters of wishes.
• STEP has responded to HMRC’s consultation on the taxation of employment benefit trusts and employment ownership trusts. STEP agrees that HMRC is right to review the current rules. It notes that HMRC’s proposal is sensible and supports the aim that ownership truly passes to employees, in line with the policy intention. STEP further supports the idea of a trustee board having active oversight of the company and agrees that appointing independent persons to the trustee board would add a layer of accountability for management.^[12]

US

• With the federal Corporate Transparency Act due to come into force on 1 January 2024, many US law firms are issuing detailed advice to corporations on how to comply with the Act’s beneficial ownership reporting obligations. It will apply to legal entities including partnerships, corporations and limited liability companies and any entity or arrangement that requires an application or registration to mark its legal existence. This includes certain types of trust, family businesses and partnerships. The provisions apply immediately to newly formed entities; however, entities formed before 1 January 2024 have a registration deadline of 1 January 2025 for their first filing.