Discretionary or family trusts typically have an 80-year vesting date from the date the trust has commenced. It is prudent of trustees and tax practitioners to be wary of this vesting date to avoid any potential issues that may arise. A vesting date is a date on which the trust will conclude or wind up. The vesting date is the date that all the assets of the trust must be distributed to all of the beneficiaries.

What is a Vesting Date?

From a taxation perspective, the vesting of a trust is a Capital Gains Tax (CGT) event resting on the assets of the trust which may produce an unwanted or untimely tax and stamp duty bill. A CGT event, labelled either E5 or E7, would occur and will depend on whether the trustee will make a taxable capital gain on post-CGT assets. This means if the market value of the assets exceeds any cost base. Should the trust transfer relate to land ownership or property transaction, a dutiable stamp duty may be liable.
If you are wary of the tax event that can ensue from a vesting date, and do not want this to occur, it may be to time to consider avoiding the vesting date.

The Perpetuities Act 1984 (NSW) and Perpetuities and Accumulations Act 1968 (Vic) requires a trust established in NSW or VIC to vest in 80 years (this applies to most other states except for South Australia, which abolished the vesting period). Older trust deeds before 1985 and the time of CGT did not consider a vesting day important and have vesting dates spanning from 30-50 years.

Amending the Vesting Date

During the life of your trust, it is common to make amendments including amending the beneficiary, increasing trustee powers and postponing the vesting date if it does not meet the same day as the perpetuity period. You may choose to amend your trust if the perpetuity period is less than 80 years if it is permitted by the terms of the trust deed.

A number of decisions have confirmed the court’s position on varying trust deeds. In Andtrust v Giovanni Andreatta [2015] NSWSC 38, it was held that the vesting date could be extended if it did not breach the rule against perpetuities. In Re Arthur Brady Family Trust [2014] QSC 244, the court affirmed that trustees are able to amend the vesting date as a transaction that benefits all parties. Where CGT and stamp duty would be payable if the trust-reducing the assets of the trust should the trust reach the vesting date and wind up. The beneficiaries were also in unanimous support of the amendment of the vesting date. In the controversial Rinehart trust feud, Gina Rinehart, the trustee of the Hancock Trust, sought to extend the vesting date days before the trust was due to vest and her four children were due to obtaining their share of the fortune. She claimed it was to prevent them from a crippling CGT event – the case resulted in an expensive legal battle.

If you are considering extending your vesting date, it is best to have your trust deed reviewed by a business structuring lawyer. Questions? Get in touch on 1300 544 755.

Sophie Glover
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