Unexpected tax liabilities for the beneficiaries of a trust

A Trust is one of the most common business structures in Australia. It has certain tax advantages; it helps to transfer wealth between the generations and it provides asset protection. A trust is set up through a trust deed which defines its terms. However, many people do not realise that the trust has an “end date” called “vesting date”.

At the “vesting date” the trustee is required to wind up the trust by distributing all the assets of the trust to the beneficiaries according to the trust deed terms.  This event may trigger unexpected liabilities for stamp duty and capital gains tax. It could be a very significant amount of money especially if the Trust holds considerable assets.

It is important to review your current trust deed’s provision in relation to the vesting date. The deed may contain the requisite power to extend the vesting date. Otherwise, it could be extended by the Supreme Court under the Trust Act.

A recent case demonstrated that the Court would make an order allowing the amendment of the vesting date if it is in the best interest of the beneficiaries of the trust. In this case the beneficiaries were facing capital gains tax and stamp duty liabilities of almost $2 million because the trust deed specifically prohibited the trustee from extending the vesting date. The court concluded that the changing of the vesting date would be in the best interests of the beneficiaries because they would have to borrow the money to meet the tax liabilities. The trust in this case commenced in 1977 and had a 40 year “period” which meant that the vesting date was 16 February 2017.

Many trust deeds are approaching their vesting date and need to be reviewed. Our dedicated legal team can assist you in this regard. Contact us on 02 9223 9166 or fill out an online enquiry.

See also our articles on what you need to know about trusts and how they can help you protect your assets.