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Why it is vital to check the vesting date of your trust deed

July 25, 2015 By Oakhill Lawyers

trust deedAll trust deeds contain a vesting date that is usually 80 years from the commencement date (which is the maximum period allowed pursuant to the rule against perpetuities). However there are some deeds which have a lesser vesting date, such as 40 or 50 years.

If your deed has a 40 year vesting date then that date may be fast approaching and you need to act well before the vesting date is reached in order to avoid tax consequences.

In most cases it is possible to extend the vesting date pursuant to a power in the trust deed. If this power is exercised properly and does not contravene the 80 year perpetuity period the extension will be valid.
If there is a general power of amendment in the trust deed then this may also enable the trust to be extended, although an application to the Supreme Court may still be necessary.

If there is no power in the trust deed then an application can be made to the Supreme Court to extend the vesting date. Whether an application to the court will be successful will depend on the circumstances of each case.

A recent case (Paloto Pty Limited v Herro) illustrates the difficulties and complexities in extending the vesting date of a trust.

The case involved a trust deed established in 1965 with a vesting date of 50 years. The Trust’s settlor died in 1991. Without a living settlor there was no power in the trust deed to vary the deed.

The trustee applied to the Supreme Court to vary the vesting date arguing that if the trust vested capital gains tax (CGT) would be payable on the trust property having adverse consequences for the beneficiaries. CGT was introduced in 1985 and therefore at the time of establishing the trust CGT was not something that was expected or foreseen.

The court refused to vary the trust for the following reasons:

  • The settlor was alive when CGT was introduced and had the power to vary the deed up until his death in 1991
  • CGT did not affect or prevent the trustee from carrying out its duties and did not jeopardise the trust property itself
  • Varying the vesting date was not necessary to preserve the Trust property
  • Granting relief to the trustee to amend the vesting date would create a new trust

In any amendment to a trust deed resettlement issues need to be considered and so it is important to seek appropriate legal advice. Contact Clare at Oakhill Lawyers for further information.

Filed Under: Estate Planning, News

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