Current as of September 2016
A Trust is a relationship where the Trustee holds assets on behalf of beneficiaries.
Sometimes the Trustee or the beneficiaries may want this relationship to end. For example, when the assets no longer exist, when the beneficiaries are old enough to look after their own assets, due to a family dispute, ill health, or administration costs. Or sometimes the Trust reaches the end of its life and “vests”.
The vesting date is detailed in the Trust deed. The vesting date may be when the beneficiaries turn a certain age or up to 80 years after establishment or commencement of the Trust (depending on which state you live in).
The Trustee is legally and personally responsible for any debts of the Trust. So the Trustee needs to be very careful when winding up a Trust as the winding up process may result in new debts (e.g. CGT or GST).
Most Trust deeds indemnify the Trustee for any liabilities of the Trust out of the assets of the Trust. But if the assets are gone there could be no funds left to pay the liabilities.
So what should the Trustee do to wind up the Trust?
- Read the Trust deed. What is the vesting date? Does the Trustee have the power to vest the Trust early?
- Decide how the Trust is to be wound up. Will the assets of the Trust be liquidated or distributed in-specie? Before the assets or cash are distributed, all outstanding debts and liabilities must be discharged (including tax, creditors and loans from banks, third parties, other family members or related parties and beneficiaries).
Where there are debts or loans owed to beneficiaries, the beneficiary may, prior to the vesting date, forgive that debt, or in the case of an unpaid Trust entitlement (i.e. an unpaid Trust distribution from a prior year) release the Trustee from its obligations in relation to that entitlement.
Both of these actions can have other tax effects for the Trust or the beneficiaries, so please contact us for advice before take any actions.
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.