All good things must come to an end – including trusts which unlike a company structure, do not have perpetuity. Below, we explain two ways to close a family trust and the issues you should consider during the process.

Closing a Family Trust

Most trusts have a designated end date called their “vesting date”. In fact, the ‘rule against perpetuities’ that still exists in most Australian states and territories requires trusts to have such a date so that property cannot be legally tied up indefinitely.

Closing a family trust usually occurs in two main ways:

  • Vesting of the trust; or
  • Dissolving the trust as per the rule in Saunders v Vautier.  

Of course, closing a family trust can happen in other ways. For example, a court can order a trust dissolved if they perceive it to be no more than a sham.

1. Vesting

To find out the designated vesting date of your family trust, you will need to check the trust deed to see how your trust was set up. The trustee(s) will then need to decide formally to terminate the trust. 

Once the trustee has done so, they must then determine how to apportion the trust assets among the beneficiaries. The trust deed will guide them in this task. The trustee can distribute an asset in a variety of ways. For example, they could decide to sell the assets of the trust and divide the money between beneficiaries. Alternatively, they could choose to transfer them wholesale to the beneficiaries.

Once the trustee has decided how to distribute trust assets, they must discharge all existing trust liabilities, including all taxation obligations.

Throughout the entire process, the trustee must ensure that the trust accounts remain correct and complete. They must have the accounts independently audited. Even though the law expects the highest standards of integrity from trustees, an audit is beneficial for reasons other than verifying the trustee’s honesty.

An independent audit of all trust accounts ensures that the trust is wound up in a transparent and open manner. That can prevent future legal action or difficulties about the winding up process. Future problems are often impossible to predict, and when they occur, they are costly and draining. Any action that could minimise the potential for disagreement is a good idea. This consideration is of particular importance in the context of a family trust.

Further, an independent audit actively protects the trustee beyond verifying honesty. It means that a trustee can disprove at the outset any suggestion or allegation of impropriety. While being a trustee is a respected position, it is also hard work. Very real harm could come to the institution of trusts if trustees were unable to protect their reputations. The ending of a trust is always a delicate situation. Without safeguards, potential trustees could refuse consent to act at all.

On the vesting day, the trustee distributes the trust’s assets minus the liabilities, to the beneficiaries via a resolution. Once this is done and formally recorded, the trustee resolves the trust to be at an end. The trustee must record this.

2. Dissolving the Trust as per the Rule in Saunders v Vautier

The rule in Saunders v Vautier states that where a trust holds property for a beneficiary or beneficiaries, these can request that the trustee transfers the property to them.  

For this to be able to occur, all beneficiaries must:

  • Be of legal age (over 18);
  • Be in agreeance; and
  • Have capacity.

The beneficiaries must first formally agree to dissolve the trust. They must record their agreement. The beneficiaries then release the trustee by executing a formal discharge. The trustee then distributes the trust property. Finally, the trustee records the dissolved trust.

Again, transparency and accurate recording are crucial. Trust accounts must be prepared and independently audited. Also, all liabilities of the trust must be discharged before the distribution of assets.


Closing a family trust is a complicated legal matter, and it’s essential you speak with a lawyer first to prevent any difficulties arising in the future. If you have any questions, get in touch with our business lawyers on 1300 544 755. 

Carole Hemingway
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