Thousands of people have a Discretionary Family Trust - a popular and legal way to protect assets with advantageous tax provisions.

But what many don't realise is that all Family Trusts contain what is called a 'vesting date'. This is the date defined in the Trust Deed when the Trust will end. Generally, it must be no more than 80 years from the date of commencement of the Trust.

It is a ticking time bomb many people either forget or don't know about. Many set the Perpetuity Period of a Family Trust, that is the period the Trust lasts, at much less than 80 years.

Sometimes Discretionary Family Trusts are established to 'vest' on the day of a specific event, such as the death of a named person - usually the person at whose initiative the Trust was established.

When the vesting day arrives the Trust officially ends. Generally this means the Trustee is required to wind up the Trust. This involves distributing all of the assets of the Trust to the beneficiaries in the way the specified in the Trust Deed.

This is when you need good legal and financial advice. Stacks commercial lawyer Tony Mitchell says failing to properly deal with the vesting of a Trust can have serious tax and revenue implications such as unintended liabilities for capital gains tax and transfer duty.

"Vesting needs to be planned well in advance of the vesting date, possibly a few years in advance, after obtaining careful legal and financial advice," Mr Mitchell said.

Vesting dates can be extended if the Trust Deed contains the requisite power, otherwise an application has to be made to the Supreme Court under the Trusts Act to extend the date.

However the vesting date can't be extended beyond the perpetuity period. This can result in unpleasant and expensive court action as we saw with the Rinehart family when Gina Rinehart applied to extend the vesting date of one of their family trust but the children, who were beneficiaries, opposed it.

Mr Mitchell says if you are a Trustee it is important to review the Trust Deed so you know the vesting date and plan accordingly. This is especially important if the Trust was created long ago by a family member who is now infirm or has died.

It is best to get the Trust Deed reviewed by a lawyer experienced in the law of Trusts and get advice on the best things to do concerning the vesting date.

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