In some cases, trustees may attempt to draft trust resolutions to anticipate potential increases in trust income. However, such attempts can render the entire resolution ineffective, creating contingent interests for beneficiaries. Lewski's case provides valuable insights into this issue:
Contingent Resolutions: Drafting resolutions with conditions, such as contingent clauses, can jeopardize the effectiveness of the resolution. For instance, a resolution intending to distribute income to beneficiaries but contingent on future events may not create present entitlements for taxation purposes.
Lewski's Case Overview: In Lewski's case, a trust resolution attempted to allocate income to a corporate beneficiary contingent on future ATO adjustments. Despite intentions, this contingent resolution failed to establish present entitlements, leading to tax assessment disputes.
ATO Interpretation: The ATO may challenge contingent resolutions, arguing that they do not create present entitlements as required by tax law. In Lewski's case, the ATO contested the effectiveness of the resolution, resulting in tax assessment disputes for the beneficiaries.
Legal Proceedings: The case proceeded to the Tribunal, where the ATO's position was upheld, emphasizing the importance of clear and non-contingent trust resolutions for tax purposes.
Understanding the implications of contingent trust resolutions is crucial for trustees to ensure compliance with tax laws and avoid potential disputes. Learn from Lewski's case to navigate trust income distribution effectively.
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