Trusts running out of time?

By William Moore

Unfortunately, most trusts don’t live forever, with discretionary and unit trusts often having a lifespan of 80 years. There are also many trusts, often established in the 1970s and 1980s, that have shorter period, and vest (end) after 40 and 50 years.

In Re Gengoult-Smith Family Trust[1], the Victorian Supreme Court used its power under s63A of the Trustee Act 1958 (Vic) to approve a variation to extend the vesting date of the trust from 50 years to 80 years. This case follows the recent decision in Re Pickering where the Court used the same power to approve variations to two trust deeds.

Background

This case involved a discretionary family trust called The Gengoult-Smith Family Trust. When the trust was established, the vesting date was set at 29 April 2024 (being 50 years, and not the usual 80 years).

The issue was the limited variation power under the trust deed, that did not permit the clause containing the vesting date to be varied. If the vesting date couldn’t be extended, the trust would vest, triggering several issues, including CGT liability and significantly reducing the beneficiaries.

Power to extend the vesting date

Sometimes a trust deed will have a specific power to alter the vesting date (also often called the termination date). If not, a trust deed will usually have a variation or amendment power, which can be used to alter the vesting date. It’s crucial to understand the terms and limitations of these to ensure if they do exist, they are utilised effectively to achieve the intended outcome.

Limitations often include not extending the vesting date past the perpetuity period (usually 80 years, except in South Australia or for a charitable trust), or getting the consent of an appointor or guardian.

No variation power

If there is no variation power, most Australian jurisdictions empower their Supreme Court to approve variations in certain circumstances. In Victoria, s63A of the Trustee Act permits a Court to approve an arrangement varying or revoking a trust on behalf of different classes of persons not capable of providing consent, including underage and unborn persons under s63A(1), provided:

  • the carrying out of the arrangement ‘would be for the benefit of’ the relevant person; and
  • once the first stage has been satisfied, the Court may approve the arrangement if, in its nature, it is a proper and fair one.

In this case, the Court held extending the vesting date would allow the trust to continue to benefit the relevant beneficiaries, which would otherwise cease if there was no extension.

The Court also found the extension was proper and fair, as it was consented to by the main beneficiaries, their shared desire to defer the CGT liability, and that the trust be used for the benefit of their children. It noted ‘It has been repeatedly affirmed that a court should not hesitate to approve an arrangement for the extension of a trust’s vesting date merely because one of the purposes of the arrangement is to avoid, reduce or defer taxation consequences.’

Resettlement?

TD 2012/21 sets out the ATO’s position on resettlement (CGT events E1 and E2). Example 3A of the TD helpfully confirms where the extension results from a Court order or the proper exercise of a power under the trust deed, E1 and E2 will not be triggered.

Takeaways

This case reminds us even when there is no variation power, it doesn’t mean there’re no options. In the right circumstances, the Court can approve a variation. It is also a good reminder to never assume a trust vests 80 years from its commencement date, and to always check the trust deed to avoid unwanted surprises – as once the trust is vested, it’s vested and there is no going back.

The Private Clients Team at Hall & Wilcox has extensive experience in all areas of trusts, including establishment, variations, Court applications and advice, disputes and related tax and duty matters.


[1] [2024] VSC 189.

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