As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’ at the following link - https://youtu.be/rynjlLBormE
As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –
Arguably trust vesting as a concept is an area of the law where you can ask 4 different lawyers for a view and you will get 5 different answers as to where it actually came from.
The theory I enjoy the most and the one that probably resonates most closely to what is possibly the truth is that, historically, trusts or as known in early English law, 'uses' could last forever.
In other words, trusts were the same as the modern-day company. There was no ending date; a trust was a structure that could last in perpetuity.
The story goes that there were forms of death duties back in the early English law. What was happening was that wealthy families would arrange for an initial transfer of assets into a trust on death.
While, there would be tax payable on that initial transfer of assets into the trust (that is, the death duty) once the asset was inside the trust, it was effectively protected from tax forever.
In other words, from a tax perspective, it was sheltered because there would be no further transfer of the asset on later deaths and therefore no further revenue to the monarchy.
The allegation was that King Henry VIII (after it took the revenue authorities about a hundred years to work it out) eventually was unimpressed that the revenue was drying up.
The reason that tax collections were drying up was because all the wealthy families were putting their assets into trusts and then effectively just skipping the death tax and making it an elective tax for later generations.
The solution, as is often the case in the structuring area, was to create the revenue outcome by imposing a limit on the life span of trusts.
Hence, you’ll see in many trust instruments, particularly earlier trust instruments, this idea of the 'life in being' of King Henry VIII or some other member of the royal family.
This is because the rule imposing the limit was set as the life in being as at the date of establishment of the trust plus 21 years. In most states (other than South Australia, which effectively has no statutory limit) the life in being approach has been replaced with a maximum period of 80 years.
** For trainspotters, ‘Don’t ask me why’ is song by Billy Joel from 1980, learn more here –
https://www.youtube.com/watch?v=DQoDqAdoBkY