You may be familiar with what a trust is, but what does it mean for a trust to be ‘vested’? This Legal Kitz blog hopes to break down this term to help you better understand what a vested trust is!
What is a vested trust?
A trust refers to the relationship in which the trustor provides a trustee with the right to assert their title to property or their assets, for the benefit of a third party. A trust becomes a vested trust once the vesting date has passed. From this date, the terms of the trust deed will dictate the status of the property when it is held by the trust. A common example of this is when a trust becomes fully entitled to the property that it holds on behalf of a beneficiary, once the vesting date has passed. As a result, the trustee’s obligations to hold the property will be terminated. For taxation purposes, the trustee may still have to perform obligations after the vesting date, pursuant to the Taxation Ruling TR2018/6. Effectively, the trust may stipulate that the trustee still has to perform certain obligations when circumstances arise, even after the vested date. This is because after the vesting date, the capital gains tax, stamp duty, GST, and other taxes will apply to the beneficiaries, as they have now become absolutely entitled to their assets.
Why are dates so important to a vested trust?
The details of a vested trust can be meticulous. It is important to know the date that a trust vests, even if you are the beneficiary of the trustee who is holding property on behalf of someone. Knowing the date is vital because after the vesting date, or the termination of the trust, the obligations of the trustee cannot be altered. Furthermore, an extension of the vesting date can prolong the application of the capital gains tax and taxation (as applicable to assets) and may greatly affect how much the beneficiary receives. The best way to find the vesting date of your trust is by looking at the terms of your trust deed; you should be familiar with all of these terms to maximise the benefits of a trust!
How long is it before a trust vests?
In every state and territory in Australia, except for South Australia, a trust must vest within 80 years. There is a long-standing common-law doctrine that rules against perpetuities that prohibits the continuation of imposing legal obligations on trustees and controlling assets. However, if the trust is set to vest within the 80-year rule against perpetuities, then an application can be made to extend the date for 80 years after the death of the testator. For this to be possible, the trust must have terms that allows for the date to be extended. For trusts that are executed in South Australia, the date can be extended beyond the 80-year limit, as the rule against perpetuities does not apply. If the trust deed does not allow for any alterations to the vesting date, then it will be necessary to submit an application to the Supreme Court of your state or territory, if you wish to adjust this.
Legal advice
Vested trusts can become complex, especially as they are responsible for holding extremely large sums of money. If you have any further questions about vested trusts, Legal Kitz is here to help with any concerns you may have! Book here now for your free consultation.