Earlier this month, the State Revenue Office (SRO) clarified its position regarding section 42(1)(a) of the Duties Act 2000 (the Act), confirming it will treat a transfer from the executor to the trustee of the testamentary trust as if it were a transfer to a beneficiary, provided the transfer is in conformity with the trusts contained in the will of the deceased, and is not for valuable consideration.
While in the past the SRO has allowed this exemption, during this year we became aware of instances where the SRO had changed its practice and started to assess duty on transfers to a trustee of testamentary trust under a will even though the transfers were made in accordance with the terms of the will.
The deceased estates duty exemption in s 42(1)(a) of the Act applies to exempt from stamp duty a transfer of dutiable property by the executor of a deceased estate to a beneficiary of that estate where the transfer is made under and in conformity with the trusts contained in the deceased’s will.
Where the executor and the trustee of the discretionary trust are the same person, the SRO stated that the change in the role from executor to trustee of the testamentary trust has no duty implications.
The SRO also confirmed a subsequent transfer of dutiable property from the trustee of the testamentary trust to a beneficiary of that trust may in some instances be exempt from duty under other exemptions in the Act (such as sections 36 and 36A of the Act).
Interestingly, the SRO only discussed the exemption under s 42(1)(a) of the Act. An exemption is also available under s 42(3) of the Act on a transfer of dutiable property, not made for valuable consideration, by an executor to a beneficiary where the transfer is made in satisfaction of the beneficiary’s entitlement arising under the will of the deceased. The purpose of this exemption is to give a full or partial exemption on a transfer not made strictly in conformity with the terms of the will (for example, pursuant to a deed of family arrangement between the beneficiaries of the estate).
Without further clarification by the SRO, there is uncertainty that the exemption under s 42(3) will be applied by the SRO to a transfer to the trustee of a testamentary trust not in conformity with the terms of the will. If you are an executor of a deceased estate in these circumstances, you should request a private ruling from the SRO to confirm the availability of this exemption, before taking any action to distribute the estate.
It should also be remembered that statements of administrative practice are not binding on the SRO.