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A ‘vesting date’ is the point at which the beneficiaries of a trust become ‘absolutely entitled’ to the trust’s assets. At this date, the trust comes to an end. What exactly happens to a trust on its vesting date depends on the trust deed’s terms. Typically, the trustee must distribute all of the trust assets and income to the beneficiaries, and the trust is wound-up. The vesting date is also known as the termination date or perpetuity date. This article will explain how you can find your trust’s vesting date, how to change this date and the details of what occurs on the vesting date. 

How Do I Know the Vesting Date of My Trust?

Many people mistakenly believe that a trust can exist indefinitely, distributing revenue to descendants long after the people who set up the trust have died. Unless your trust is based in South Australia, this is not correct. By law, a trust must vest within 80 years of being created. This is the rule against perpetuities.

You can find the vesting date of your trust in the trust deed. The vesting date will often be a defined term and is commonly capitalised. You should find more details of the vesting date in the definitions section of the trust deed (usually one of the deed’s first clauses). 

Here is an example of a Vesting Date definition clause:

Vesting Date means the earlier to occur of:

a) The 79th anniversary of the date of this Deed;

b) The date determined to be the vesting date by notice in writing by the Trustee to the Appointor; and

c) The date prescribed by law as being the vesting date so as not to infringe the rule against perpetuities.

In the above example, the trust will vest precisely 80 years after the creation of the trust unless the trustee determines an earlier date, or a change in the law requires an earlier date.

Alternatively, you may set the vesting date of your trust in a specific clause of the trust deed. If there is not a clause in your trust deed that refers explicitly to ‘vesting,’ look for terms such as ‘winding up’, ‘termination’ or ‘ending’ of the trust.

Can I Change My Trust’s Vesting Date?

In every state and territory, a trust must vest after no longer than 80 years. An exception is if your trust is based in South Australia. However, if your trust’s vesting period is less than 80 years, it should typically be possible to extend the vesting date as long as the trust deed includes a power to do so. If your trust’s vesting date has already passed, then it will not be possible to extend it.

As in the example given above, most trust deeds will allow the trustee to determine a different vesting date to that set out in the deed. The trustee may be able to do this unilaterally or they might need the consent of the trust’s appointor.

Note: The appointor is the person with the power to appoint and remove the trustee. As with every other role (the trustee, settlor and beneficiaries), you can find your trust’s appointor in the trust deed.

The power to change the trust’s vesting date can be used if you want to wind-up your trust early. The trustee simply makes a determination to bring forward the vesting date to an agreed date, upon which the trust assets are paid out and the trust is wound up. You can read more about winding-up a trust in our article here.

Even if your trust deed is silent on the issue of changing the vesting date, it can still be possible to do so. However, this would require going to the Supreme Court of your state or territory and requesting them to approve a variation. This can be a costly procedure.

What Happens on the Vesting Date?

What happens on the vesting date depends on the terms of your trust deed. Usually, the trustee pays out any outstanding debts or liabilities of the trust, then distributes the remaining trust assets to the beneficiaries. 

The trust deed may set out exactly which beneficiaries are entitled to a share of the trust assets upon the vesting date (known as ‘primary’ or ‘capital’ beneficiaries). Alternatively, the trustee may have discretion regarding the final distribution of trust assets. 

If the vesting date of your trust is approaching, or has already passed, it is essential to speak with an accountant or tax lawyer about the tax implications. The vesting of a trust may trigger capital gains tax, income tax or stamp duty liabilities. These will depend on the trust assets, what state the trust is based in and who the beneficiaries are. Determining whether you may trigger any tax liabilities when vesting your trust depends on a careful review of your trust deed and a strong grasp of Australian taxation law. Trust law can be a highly technical area, so it is essential to consult with a lawyer before making any changes to your trust or bringing it to an end.

Key Takeaways

A vesting date is a date in which a trust comes to an end. What exactly happens upon the vesting of a trust depends on the trust deed’s terms. However, the trustee usually pays out the trust assets to the beneficiaries, and the trust comes to an end. A trust must vest after no longer than 80 years (except in South Australia). If your trust’s vesting date is less than this, it may be possible to extend this date. This will depend on your trust deed’s terms. If you have any questions about trust vesting or trusts generally, contact LegalVision’s business structuring lawyers on 1300 544 755 or fill out the form on this page.

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