Tuesday, August 15, 2023

Lost trust** deeds and trust vesting

View Legal blog - Lost trust** deeds and trust vesting by Matthew Burgess

If a trust deed cannot be found, commercially it can often be the case that the most responsible approach is for the trustee to wind up the trust. Indeed, there may be disgruntled beneficiaries or third parties that essentially force a trustee to adopt this course.

Any vesting of a trust is likely to trigger a range of revenue consequences, particularly taxation and stamp duty.

These revenue consequences normally arise where a positive determination is made by the trustee to vest a trust, the trustee will usually resolve to make one or more beneficiaries absolutely entitled to the assets (or specific assets) of the trust.

While not intended to be an exhaustive list, the revenue related ramifications of a trust vesting can include:
  1. capital gains tax being payable on the increase in the value of any assets being transferred since the date they were acquired;
  2. income tax being payable on non-capital assets, such as plant and equipment and trading stock;
  3. stamp duty being payable on the transfer of the assets, to the extent they comprise dutiable property in the relevant jurisdiction;
  4. additional tax, stamp duty and commercial costs being incurred to subsequently transfer the assets out of the name of the recipient beneficiary (if they want the assets then re-routed to a trust environment);
  5. asset protection exposure for the beneficiary receiving the assets in the event they subsequently commit an act of bankruptcy;
  6. considering the impact of the rule against perpetuities (which effectively prevents a distribution to another trust if this causes the assets to remain within a trust environment for more than 80 years); and
  7. where an individual receives the assets, the need to update their estate plan to reflect the additional assets owned in their personal name.
If the vesting of a trust is being anticipated by the parties, many of the consequences above can be adequately managed through appropriate planning.

** For the trainspotters, the title of today's post is riffed from the Cure song 'Trust’.

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