Most discretionary trusts have a maximum lifespan – a limitation dating back to 1683 and involving the Duke of Norfolk! The end of a trust, known as the “vesting date”, for most modern trusts is 80 years from the establishment of the trust – however, some older trusts had a shorter period set.
A Trust was approaching its vesting date just 50 years from its creation. If the trust was vested, the beneficiaries set to receive the trust property would have incurred substantial Capital Gains Tax and ongoing income tax and asset protection issues. They wanted to extend the trust’s life to the maximum 80 years, a process that is possible but often challenging.
The Challenge
The Trust had a restrictive variation power in the trust deed that prevented the trustee from changing the vesting date. While all beneficiaries of a trust can consent to an amendment by ending the old trust and creating a new one, unanimous agreement was impossible due to the inclusion of minor and unborn beneficiaries who could not consent.
The Solution
KCL Law have run matters in the Victorian Supreme Court, which can amend a trust if satisfied that the proposed variation:
- Would benefit the minor and unborn beneficiaries.
- Had consent from all adult and corporate beneficiaries.
- Was proper and fair in nature.
We have had to distinguish these cases from similar, unsuccessful ones and convince the Court that the extension was consistent with the original purpose of the trust. In one case we also argued that an independent representative for the minor and unborn beneficiaries was unnecessary because their interests aligned with the trustee’s interests.
We have successfully had an extension of a trust’s life to the 80 year period.
Key Takeaways:
- Monitor the Vesting Date: Regularly check the vesting date in your trust’s deed.
- Plan Ahead: If the vesting date is near, consider whether it can be extended and take necessary actions.
As the end date for many older trusts approaches, understanding these rules and potential solutions is crucial. For anyone managing a discretionary trust or unit trust, keeping an eye on the vesting date and planning accordingly can save significant tax liabilities and protect assets.
If you need assistance navigating this complex landscape, KCL Law’s Estate Group is here to help.