Discretionary / Family Trust -finite life?

A

alexlee

Simple question: do discretionary / family trusts have a finite life? i.e. do they have to be unwound after a certain period, or can they go on indefinitely? I'm thinking what happens if the person who created the trust (say, me) dies, can directorship of the trustee company just be passed onto children / grandchildren and they can just continue to operate the trust without having to transfer trust assets?
Alex
 
I believe 80 years is their limit. I imagine most are wound up long before that, but would curious to hear stats that anyone has.
 
Mry, does that mean after the dissolution of the trust assets will have to be transferred to beneficiaries (or the trustee's nominated recipient) with CGT and stamp duty consequences? I'm probably getting WAY too ahead of myself. given that I probably won't live for another 80 years!
Alex
 
I am not sure of the stamp duty consequences, especially since they vary state by state, but the trust does make a capital gain on distributing to beneficiaries. Capital Gains event e4 for discretionary trusts, and just basic A1 for unit trusts.
 
I think it's a bit premature to start considering the tax consequences of an event happening in 80 years time :D

One or two things might have changed by then... :rolleyes:

GP
 
Consider starting a new trust every couple of years & putting new assets/distributions into it.

That will give you almost 80 years after your death before your final trust vests. And it'll also spread the vesting & associated tax consequences many years.
 
keithj said:
Consider starting a new trust every couple of years & putting new assets/distributions into it.

That will give you almost 80 years after your death before your final trust vests. And it'll also spread the vesting & associated tax consequences many years.
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Interesting idea. Especially where the assets held in the trust have no legal risk (i.e. the trust just holds listed securities and debt) I assume it would be possible to just use the same corporate trustee throughout? While it would increase bookkeeping and so on, it certainly makes final vesting much more flexible.
Alex
 
Would it be possible to after say 75 yrs - open another family trust and make that a beneficiary of the intial trust.

So that when the assets get divested they could all go into the new trust?
 
willy1111 said:
Would it be possible to after say 75 yrs - open another family trust and make that a beneficiary of the intial trust.

So that when the assets get divested they could all go into the new trust?
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Probably, but that doesn't solve the issue of you'd probably have to pay all the stamp associated with the transfer of most of your assets in one hit (of course by that time it's your beneficiaries' problem).

I suppose if I left my assets appreciate for 80 years my beneficiaries aren't going to complain about paying stamp....
Alex
 
Mry said:
80 years is the maximum a trust can go for. After that they must vest.
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Sorry to bring up an old thread, but I have recently heard that in South Australia there is no vesting period for a trust, hence a trust could live forever. I have tried to search on google for confirmation of this but am drawing blanks. Perhaps i misheard?
 
Hi there
this would infringe the law against perpetuities - they do have to vest at one stage.

I understand the Chan & Naylor property investors's trust deed is meant to overcome this - but not quite sure how.

Also why should someone dictate from the grave how property should be dealt with in 80 years.

I have been involved with a family business that did have the assets vest into superannuation funds.

It will be for future family members to get some advice at the time how to organise the vesting so it is tax effective for them.
thanks
 
South Australia is apparently the only state in Australia which does not have a law against perpetuities.

Having a trust governed by SA law may be a way around the vesting issue. But I am not sure how this works either. ie Does the trustee have to reside in SA, or be a company with SA directors? What happens if property is owned in different states etc?
 
Yes, SA doesnt have the rule of perpetuities so you need a specially drafted deed that does not force the trustee to vest after 80 years. The trustee needs to be a resident of SA.
 
Re Trust Vesting Date

Hi Everyone. Just to help out.
Yes, most, if not all Trust Deeds Vests after 80 years and the assets gets passed onto the Beneficiaries and capital gains tax and stamp duty is payable. Some have asked why is this so?. Its because its deemed a transfer of title from the Trust to the Beneficiary. When both legal and beneficial title changes hands than the State government puts their hand out for stamp duty and the Federal Government puts their hand out for Capital Gains tax..
Yes we have been able to get around the 80 year vesting date with our PIT™ and have spent many years and a lot of money and grief getting this done. We have trade marked our PIT™ because it cost us tens of thousands of dollars paying lawyers and putting in many years ourselves. Lawyers identified many reasons initially why we could not exclude a vesting date which we then worked through one by one over 6 months.
We can say that we need to ensure three tests/requirements are passed being the trustee and how it is set up, how the trust deed is worded (not just the area dealing with vesting date but in various other places) and thirdly how to connect the trustee and trust to bring it all together.
Having achieved this the C&N Property Investor TrustTM Deed has effectively no vesting date...

Not everyone would need “no vesting date” and some say they won’t be around 80 years from today so why worry about it but we thought “heck” why have a vesting date when there was no reason to have one and leave your children a tax bill that they did not anticipate to have and if we can get rid of it, why not do it.
We have never taken “it can’t be done” from anyone and the more they said it could not be done the more we needed to find a solution.

Hope this helps.

Regards
The Team at Chan & Naylor
www.chan-naylor.com.au
 
Thanks for posting Chan and Naylor. I have 2 questions about the PIT.

1. How did you overcome the vesting limitations?

Here are some excerpts from legislation seemingly barring a trust from operating beyond the 80 year mark. How does your PIT overcome this?

Property Law Act (Qld) s 209
the perpetuity period applicable to the disposition under the rule against perpetuities instead of being of any other duration shall be such number of years not exceeding 80 as is specified in the instrument as the perpetuity period applicable to the disposition.
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Perpetuities Act 1984 (NSW) s 7
(1) For the purposes of the rule against perpetuities, the perpetuity period applicable to an interest created by a settlement shall be 80 years from the date on which the settlement takes effect.
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Perpetuities and Accumulations Act 1968 s5 (Vic)
Save as in this Act otherwise provided where the instrument by which any disposition is made so provides the perpetuity period applicable to the disposition under the rule against perpetuities instead of being of any other duration shall be such number of years not exceeding eighty as is specified in
the instrument as the perpetuity period applicable to the disposition.
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I am unaware of any lawyer or trust deed firm preparer in the country other than yourselves to be offering a vesting free period deed.

2 - I emailed Chan and Naylor a few months back about problems I had with the book "How to Reduce your tax." I asked why in the example "Young doctor seeks asset protection", he obtains asset protection and negative gearing with a 'unit trust' when unit trusts have units that can be seized by a trustee in bankruptcy. In part of that reply dealing with example , I was told that the unit trust was a special unit trust that issued income only units to the doctor that provided him with the ability to negative gear, despite there being no capital rights. Chris Batten stated -
I have seen the PIT Deed and can confirm that it is a hybrid discretionary trust that has the ability to direct income to discretionary beneficiaries that would otherwise go to Income Unitholders under the deeds you currently source. The problem is that the ATO MAY apportion the interest in line with IT2684 and Fletcher & Ors v. FC of T 91 ATC 4538 at 4957. The hybrid discretionary trust has many benefits for property investors and to push the limits whereby the arrangement becomes artificial and contrived is asking for trouble from the ATO.
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With PBR 66298 and the recent tax alert from the tax office, is Chan and Naylor still using deeds that allow this tax treatment? Shadow a poster on this forum mentioned that you are giving your clients a choice of income or income and capital rights and warning them that the tax treatment of income - only units is not clear. Is this correct? Do you have any private binding rulings?
 
Hi C & N,

For NSW buyers, there is no land tax exemption for property bought using trust. How do you overcome this issue?

Thanks,
Jenny
 
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