Mills Oakley Tax Note – Vesting Dates: Is your trust at an end?

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By Stuart O’Neill, Special Counsel

A trust deed may require amendments throughout its lifetime due to changes in circumstances and in the law.

A critical amendment that may be necessary is to extend the vesting date.

The vesting date (as defined under the relevant trust deed) is the date that a trust officially ends.

Most modern trust deeds have the standard vesting period of 80 years from the date of establishment.  There are also those that end within a certain period after the death of the last living descent of King George V.

Then you have the ones which were settled during the 70s and 80s which have vesting periods of 40 or 50 years.  This means that many of you will be finding trust deeds which are either coming up to their expiry date, or have expired.

More often than not, there can be undesirable tax consequences to beneficiaries upon the vesting of a trust and undesirable impacts on the family succession plans.

First action: read the deed!  Never assume the vesting date is 80 years after settlement.

If the ship hasn’t sailed yet, there are things that can be done to extend its life.

Varying the deed

Some trust deeds expressly empower the trustee to extend the vesting date or generally have wide amendment powers, so long as it does not breach the rule against perpetuities.  The consent of a particular person (such as the appointor or principal) may be required to enable the variation.

When varying a deed, caution should always be exercised so as not to cause a resettlement.  Also ensure that it is done in accordance with the trust terms.

Court application

In cases where the trust deed contains limited variation power, a court application can be made.  The Supreme Court in most jurisdictions will have the statutory power to vary trust instruments upon satisfaction of either (depending on the state, which should be properly considered):

  • the “expedient” test; or
  • the “best interests of beneficiaries” test.

We have seen numerous cases where applications to extend the vesting date have been successful, including by reason of the adverse tax impacts.

If the vesting date is fast approaching, we can assist by:

  • providing a trust deed review and amendment service;
  • advising on any potential adverse capital gains tax and stamp duty consequences;
  • facilitate the court application process; and
  • where relevant, recommending other solutions.
For further information, please do not hesitate to contact us.

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