Trust Vesting

Current as of July 2018

We have had a few situations recently with client’s trusts getting close to the vesting date of the trust. The vesting date of a trust is the date that the assets of a trust vest in the beneficiaries. On vesting, the beneficial interests in the assets become fixed.

The ATO issued draft tax ruling (TR 2017/D10) late last year addressing the circumstances where the vesting date of a trust can be amended, as well as the tax consequences of a trust vesting. The key points in the draft ruling are that:

  • Before vesting, it may be possible to extend the vesting date. The extended vesting date can’t breach the rule against perpetuities (which limits the trust life to 80 years in most states);
  • At vesting date, the interests in the trust property become fixed, and it is no longer possible to extend the vesting date; and
  • Continuing to administer a trust as if it hadn’t vested can have significant tax consequences.

The vesting of a trust doesn’t always end the trust, or create a new trust. If the trust deed allows the trustee to continue to hold the trust property for specified beneficiaries after the vesting date, then the same underlying trust relationship continues after the vesting date, but the duties of the trustee will have changed.  For a discretionary trust for example, once the trust has vested the trustee no longer has any discretionary power in relation to income or capital, but may continue to hold the trust property for the absolute benefit of specified beneficiaries.

Vesting of a trust can trigger Capital Gains Tax, but this is not always the case.

To avoid unnecessary tax consequences, it is vital that trustees are aware of the vesting date of the trust. With planning in the few years leading up to vesting date, advice can be sought and action taken to ensure that vesting is as tax effective as possible.

The ATO have a page on their website providing further details on trust vesting, including a link to the draft ruling and consultation process.

 

DISCLAIMER
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.