All good things come to an end: Trusts and vesting dates

September 7, 2023

All good things come to an end, including trusts. It is therefore important that if you are a beneficiary or trustee of a trust, you are aware of the vesting date of the trust and the significance it holds.

What is a vesting date?

The vesting date is the date on which a trust will end. It is a critical aspect of a trust as it determines when the beneficiaries become entitled to the remaining trust assets. Until this date, the trustee retains the right to control or modify the trust and distribute the trust assets.

Why is it important?

It is important to know when your vesting date occurs for the following reasons:

1. it determines the date when the beneficiaries gain control over the remaining trust assets, allowing them to exercise powers to manage, sell or transfer the property;
2. it allows you to make informed financial decisions in regard to how you might use these assets; and
3. it is crucial for estate planning purposes.

For example, if you intend to hold an asset or a business in a trust for a long period of time, potentially for future generations, you need to ensure that the trust does not vest within that time frame.

Tax implications

The vesting of a trust may have capital gains tax (CGT), stamp duty and income tax consequences. For example, CGT may be incurred where the trustee and beneficiaries agree to continue managing the assets as if the trust never vested. This situation would be treated as if a new trust had been created over the assets commencing from the vesting date. CGT implications might also arise where the assets vest in beneficiaries on the vesting date.

Can you extend the vesting date?

Currently in Queensland and New South Wales, the vesting date cannot be extended to a date more than 80 years from the date the trust originally commenced.

Proposed legislative changes in Queensland will extend potential vesting dates to 125 years from when the trust originally commenced, greatly adding to the appeal of trusts as a long-term asset holding structure.

If your trust deed allows, a shorter vesting date may be extended up to the legislated period.

Not all trust deeds are created equal. The vesting date may only be extended if the variation clause in the trust deed allows it. It is therefore important to obtain your trust deeds from a reliable supplier. At Fox and Thomas, we have spent a lot of time crafting our trust deeds to suit our clients’ various needs.

Deed does not allow an extension

If you are nearing the vesting date of your trust and your trust deed does not allow an extension, with enough planning there are still many steps you can take to reduce the impact of vesting by taking advantage of the many stamp duty and capital gains tax concessions and exemptions that are available.

If you have any concerns about the vesting date, or any other aspect, of your trust deed, please contact a member of our Business Services team.