FAMILY TRUST VESTING DAY – TIME BOMBS AND SLEEPING GIANTS
By Joe Scurria
Director, Avon Legal
There are over 700,000 family trusts in Australia, and over 3 million potential beneficiaries. These trusts hold investments such as real property, shares, liquid investments and businesses including goodwill, vehicles, plant and stock.
Trusts provide a number of potential advantages, including:
It is important to review the Trust Deed to determine when the vesting date of the trust occurs. This is a set date, which commonly occurs between 40 and 80 years after the creation of the trust, or after the death of a particular person or persons. The vesting date of a trust can be brought forward, and sometimes extended, however it cannot infringe the rule against perpetuities.
What Happens on Vesting
Vesting of a trust can be either planned or unplanned.
Planned vesting can be either total or partial, and occurs when trust assets are vested in the beneficiaries as determined by the trustee and guardian.
Unplanned vesting is a total vesting on the vesting date, where there are “takers in default”. This normally results in vesting of trust assets to the primary or specified beneficiaries.
On vesting and disposal of the trust assets by the trustee to the beneficiaries, it is recommended that you obtain independent tax advice as the trust may be liable for capital gains tax.
Additionally the transfer will be dutiable unless section 115 of the Duties Act 2008 (WA) is satisfied for nominal duty.
This means that careful planning for duty and capital gains tax is required.
It is recommended that you undertake regular trust housekeeping, which should include but is not limited to:
Beneficiary Loan Accounts
These are legally enforceable debts which can be traps for the unwary. These loans can be assigned, gifted or forgiven (subject to tax advice).
Additionally, these loans can have implications in family law proceedings, where the initial contributions of the parties are included as part of the property pool, or the loan is included as an asset available for distribution.
Duty Exemption on Vesting (Duties Act 2008 (WA)).
On planned vesting, as provided under s 115 of the Duties Act 2008 (WA) nominal duty of $20 is chargeable on a transfer of dutiable property to a beneficiary of a discretionary trust, if:
On unplanned vesting, as provided under s 114 of the Duties Act 2008 (WA), nominal duty is chargeable on a transaction, if there is, or will be, no consideration for the transaction. Section 114 is applicable to a transfer of, or an agreement for the transfer of, dutiable property to a taker in default on the vesting or termination of the discretionary trust.
Know the vesting date of your trust and be prepared for it.
This paper cannot be regarded as legal advice.
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