What is your trust's vesting date and why should you know it?

Trust vesting dates are often treated as a distant issue, something for the next generation to worry about. In practice, that approach can expose trustees and advisers to significant legal and tax risks if a vesting date is overlooked, misunderstood or reached earlier than expected.

This article provides an overview of what a vesting date is, why it matters, and what trustees, accountants and advisers should be doing now, particularly in light of the ATO’s current views and recent legislative developments.

What is a vesting date?

The vesting date (or termination date) in relation to a trust is the date upon which the interests in the trust property become fixed. In almost all cases, this date is specified in the trust deed.

In order to limit how long trusts can operate, most States and Territories impose a maximum trust period (commonly referred to as the ‘rule against perpetuities’). This is generally 80 years (or ‘life in being plus 21 years’) from the date the trust is settled, however notably:

• from 1 August 2025, trusts governed by Queensland law may have a vesting period of up to 125 years[1]; and
• trusts governed by South Australian law are not subject by a fixed perpetuity period, although the Court may order a trust to vest in certain circumstances.[2]

What happens when a trust vests?

On the vesting date, in accordance with the terms of the trust deed, the relevant beneficiaries become absolutely entitled to their specified interests in the trust property. That is, the interests in the trust property become fixed and vested in the relevant beneficiaries.

The powers of the trustee also change. For instance, in the case of Cleardocs’ discretionary trusts, the trustee’s discretion to distribute trust income and capital comes to an end on the vesting date, and the remaining trust property must be distributed as soon as possible to the relevant beneficiaries.

Why does the vesting date matter?

The vesting date matters because it changes:

• who is entitled to trust income and capital;
• the powers and obligations of the trustee; and
• the tax treatment of the trust and its beneficiaries.

The ATO has issued Taxation Ruling TR 2018/6, which sets out its views on capital gains tax (CGT) and income tax consequences when a trust vests.[3]

The ruling clarifies the ATO’s view that CGT may not be triggered by vesting of the trust alone, however:

• if the trustee and the relevant beneficiaries (who on vesting have a fixed interest) agree that the trust assets will be managed as if the trust has not vested, this may amount to the creation of a new trust, triggering CGT event E1;
• if the vesting of the trust results in a beneficiary becoming absolutely entitled as against the trustee to CGT assets of the trust, this may trigger CGT event E5; and
• after the trust vests, the actual distribution of CGT assets to beneficiaries may trigger CGT event E7.

It also highlights common problem areas, including:

• trustees mistakenly assuming a vesting date has been extended when it has not;
• trustees continuing to exercise discretionary powers after vesting; and
• post-vesting conduct that may give rise to a new trust. 

Can a vesting date be extended?

A vesting date can only be extended before it occurs, and only if the trust deed permits it or a court authorises the change. Any proposed extension must be made in accordance with the trust deed and within the applicable perpetuity period.

Where the trustee intends to amend or extend the vesting date, careful consideration should also be given to whether the change could give rise to a resettlement of the trust.

Importantly, once a trust has vested, the vesting date cannot be changed or extended. Continuing to make discretionary distributions after vesting may expose trustees to breach of trust risks and unintended tax outcomes.

What does this mean for your trust?

The key message is that vesting dates should be treated as a current governance issue, not a future problem.

You should:

• check the vesting date in your trust deed;
• understand how the trust must be administered once vesting occurs; and
• seek advice early if a vesting date is approaching.

What Cleardocs products are available?

Cleardocs offer the following products:

• Discretionary (Family) Trust;
• Family Trust Trustee bundle;
• Hybrid Trust.

Please read the Product Benefits, Product Information and Frequently Asked Legal Questions carefully and consider whether a Cleardocs product is appropriate for your circumstances before purchasing.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More ClearLaw information on related topics

• Director changes can trigger landholder duty in Victoria. What does this mean for you?
• Trust Issues: Learning to Read the Green, Red (and Beige) Flag
• Discretionary Trust Deeds for Family Trusts - Aren't they all the same?

[1] Section 201 of the Property Law Act 2023 (Qld).

[2] Section 62 of the Law of Property Act 1936 (SA).

[3] TR2018/6 ‘Income tax: trust vesting – consequences of a trust vesting’.