Hi. Welcome to the latest episode of It depends. Today we're going to be talking about the vesting dates for trusts, particularly in the context of some proposed changes to Queensland's trust law.
What is the 'vesting date' and why is it important?
The vesting day for a trust is essentially the date that the trust has to end and all of the assets are distributed out. This can be pretty important because when the vesting date arrives, if there's any assets and income left in the trust, then particular people named in the trust deed as the default beneficiaries automatically become entitled to those assets.
Why is the vesting date of a trust so important?
There are a few big things that happen when a trust vests. Firstly, the assets and income in the trust vest in the default beneficiaries, which means the trustee actually loses the discretion about how to distribute those assets. Secondly, when it comes to actually transferring the assets from the trust to the beneficiaries who are entitled, we can trigger some tax and duty problems. This can be a particular concern if we have any unrealised capital gains in the trust, because all of those are going to be realised when we transfer the assets and because we can't play around with who receives what income, we can't work out how to minimise tax consequences of those distributions at the time and lastly, we're going to lose the opportunity to use up any carry forward losses that are in the trust.
When does a trust vest?
It depends. The vesting date for the trust is actually set out in the trust deed. Most trust deeds tend to say about 80 years after the trust is set up, which reflects the position at Queensland law. Some trust deeds do have earlier periods though and it's really important to pay attention to those because if we miss the vesting date, then we have all of those tax and duty consequences we were talking about earlier.
So why am I talking about 125 year vesting dates?
There's currently a bill before parliament where the proposed changes to the legislation will essentially allow most trustees to delay the vesting of their trust until 125 years from the date the trust was set up. This is a pretty great development because it's going to let us push back some of those tax and duty consequences we were talking about earlier. Whether the trust can extend the vesting date though is going to depend on a few things. Firstly, the trustee needs to actually have the power under the trust deed to extend the vesting date. If the power under the trust deed isn't actually there, then the trustee either needs to get the consent of all of the beneficiaries of the trust, which may be a little bit difficult considering the wide classes of beneficiaries for discretionary trusts or the trustee is actually going to have to apply to the court for a determination.
What can I do if I want to extend the vesting date?
Firstly, you're going to need to make sure that your trust deed actually gives you the power to extend the vesting date for the trust. This is one of the steps we can take now to make sure that your trust is in a position to rely on this power once it's passed parliament. Secondly, you will need to watch this space and you'll see some more information from us once the legislation passes parliament and once the power has actually commenced. Once legislation has passed, then it actually becomes time to look at varying the trust deed. This is going to be a really important step in the process and if you get it wrong, there are going to be some pretty significant consequences. If the variation isn't done properly, then there's likely going to be an argument that the vesting date was never actually changed and when that original vesting date does roll around, all of those tax and duty consequences that we've been trying to avoid are going to be triggered. If this is the sort of thing that you or your clients are interested in doing, please feel free to reach out to me or one of the team and we can talk to you about a little bit more. Thanks for watching.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.