Extending the
Vesting Date of Trusts
Many trusts established in the 1980s and 1990s are approaching their vesting date — typically 80 years from establishment. Vesting triggers a deemed disposal of all trust assets at market value, with potentially significant CGT and stamp duty consequences.
Why vesting is a
critical tax event
On the vesting date of a trust, the trust property must be distributed to the beneficiaries and the trust ceases. For tax purposes, this is treated as a disposal of the trust assets at their market value — potentially triggering CGT Event E5 (beneficiary becomes absolutely entitled) or CGT Event A1 on the distribution of trust assets at market value.
For trusts that have held property for decades — with significant appreciation in value — the CGT liability on vesting can be very large. Stamp duty may also apply on the transfer of property from the trustee to the beneficiaries on vesting.
Trusts established in the mid-1940s are already vesting. Trusts established in the 1970s and 1980s will vest within the next decade. The issue must be addressed well in advance — at least 2–3 years before the vesting date.
- Whether the deed contains a power to extend the vesting date — the first critical question
- ATO’s position on extending vesting — Taxpayer Alert TA 2012/8 and subsequent guidance
- Whether an extension constitutes a resettlement — the analysis depends on each deed
- The perpetuity period — whether State legislation imposes a hard limit
- Stamp duty on the extension or change of trustee near the vesting date
- Alternative strategies where extension is not possible — trust cloning, early distribution
MGS Private’s Approach
Analysing and implementing the extension
Trust approaching its vesting date?
Address the issue at least 2–3 years in advance — the cost and options narrow significantly as the date approaches.