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In all states except South Australia, the Rule Against Perpetuities means that a trust must vest by a date which is no greater than 80 years from the settlement date of the trust. Paloto's Case  demonstrates that:
Paloto's Case concerned a trust deed made on 8 June 1965. The trust held only ordinary and redeemable shares in a private company.
The Deed gave the settlor the power to revoke or vary the terms of the Trust. In 1974, pursuant to this power, the settlor and trustee executed a variation to the Deed, making a number of changes to the Deed.
The changes included making the Trust's vesting date 50 years after it was originally executed: namely, 8 June 2015. At this date the Trust property would 'vest' in the beneficiaries (be transferred from the trustee to one or more of the beneficiaries). This would result in adverse capital gains tax consequences.
As the Trust's settlor died in 1991, there was no power to vary the Deed. The trustee applied to the NSW Supreme Court to vary the vesting date to no later than 7 June 2045 (in accordance with the 80 year perpetuities limit).
The issue was whether the Court's inherent jurisdiction — to allow deviations from the terms of a trust deed — enabled the Court to allow the trustee to vary the Deed and extend the vesting date.
Justice Darke found that the Court's power is exercised only in exceptional or urgent circumstances. These are circumstances involving:
"an emergency that has arisen in the course of administration of the estate which needs to be resolved in the interests of preserving the trust property." 
The trustee argued that:
However, the Court did not agree with the trustee for the following reasons:
Accordingly, the trustee was not granted an order allowing it to alter the vesting date.
While a trustee may apply to the Court to extend a vesting date, Paloto's Case illustrates that there is no guarantee the Court will allow the extension.
Therefore, it is important for those administering and managing trusts to plan for vesting dates. This planning could include:
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics.
Paloto Pty Limited v Herro  NSWSC 445.
 Paloto Pty Limited v Herro  NSWSC 445, at .
Andrew is a Partner in the Maddocks Tax & Revenue team.
Andrew provides advice on:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.
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