Trusts have long been a central feature of the Australian tax and financial landscape, valued for their flexibility, asset protection, and control over income distributions. But while trusts can offer significant advantages, they also come with a built-in expiry date, especially in some jurisdictions. Understanding what happens when a trust vests is essential for effective long-term planning, especially as intergenerational wealth and succession planning come into sharper focus.
What Is a Trust and How Does It Work?
A trust is a legal arrangement where one party, called the trustee, holds and manages assets for the benefit of others, known as beneficiaries. The trustee has a fiduciary duty to manage the trust assets responsibly and in the best interests of the beneficiaries.
In Australia, discretionary trusts are the most common type. Here, the trustee has the power to decide which beneficiaries receive income or capital, and how much. This flexibility is valuable for tax planning and asset protection. However, trusts separate legal ownership from beneficial ownership, which introduces important legal and tax considerations, especially when it comes to how long a trust can operate.
Trust Lifespan Differences Between States
One of the key legal rules affecting trusts is how long they can continue to exist before they must “vest” or come to an end.
In New South Wales, most trusts are limited to an 80-year lifespan under the Perpetuities Act 1984 (NSW). This means that at the end of that period, the trust must vest, triggering a number of important legal and financial consequences such as tax liabilities and the loss of trustee discretion. It’s a fixed deadline that requires proactive planning, particularly for trusts holding significant or generational assets.
In Queensland, reforms under the Property Law Act 2023 (Qld) (commencing 1 August 2025) abolish the common-law rule against perpetuities and introduce a new statutory regime permitting a maximum trust duration of up to 125 years. The change applies to new trusts and may apply to existing trusts if the trust deed permits variation or transitional provisions are satisfied, so each deed must be reviewed.
South Australia offers even greater flexibility. Since 2010, South Australia has abolished the rule against perpetuities, allowing trusts governed by SA law to continue indefinitely unless a vesting date is specified in the deed. Courts retain powers in some circumstances to order vesting, but there is no statutory maximum term.
The remaining jurisdictions — Victoria, Western Australia, Tasmania, the ACT, and the Northern Territory — generally continue to impose a maximum trust duration of around 80 years, or use the traditional “life in being plus 21 years” rule.
The practical implication? Clients with trusts in NSW and most other states must carefully plan around the vesting deadline. In contrast, those in Queensland and South Australia benefit from greater flexibility, being able to extend the trust’s life up to 125 years or, in SA’s case, potentially operate without a vesting deadline at all. This is particularly valuable when managing intergenerational wealth or planning long-term control of assets.
What Happens When a Trust Vests?
When a trust reaches its vesting date, it doesn’t automatically terminate, but it transitions into a different legal and operational phase. From the vesting date, the trustee’s discretion may cease if the deed provides for fixed entitlements. In many cases, beneficiaries then become absolutely entitled to the trust’s assets and income, but the exact effect depends entirely on the trust deed and applicable law.
In essence, the trust shifts from a discretionary trust, where the trustee can decide who gets what and when, to a fixed trust, where distributions must follow a set formula or entitlement. This can have significant consequences, particularly if the trust was being used to manage tax outcomes or distribute income in a tailored way.
Whether or not the trust formally terminates depends on the terms of the trust deed. Some deeds may provide for the trust to continue holding assets for fixed beneficiaries, while others may require the assets to be distributed outright.
Legal and Tax Implications of Vesting
The vesting of a trust is not just a legal formality, it comes with real-world tax and compliance implications that must be managed carefully.
1. Capital Gains Tax (CGT) Events
Vesting may trigger CGT events when assets pass to beneficiaries or new rights are created, even if no money changes hands. However, in some cases, rollovers or other reliefs may reduce or defer these liabilities, so specialist tax advice is essential. Common CGT events include:
- Selling, trading, or gifting trust assets
- Transferring ownership to beneficiaries
- Creating new legal rights
The type of CGT event and the timing of it can significantly impact the calculation of any capital gain or loss, and therefore the trust’s tax liability.
2. Loss of Income Streaming Flexibility
Once a trust has vested, the trustee generally loses the ability to stream different types of income (e.g. capital gains, franked dividends) to different beneficiaries. This can result in less tax-effective outcomes for beneficiaries, especially those in different tax brackets.
3. Unintended Distributions or Legal Disputes
If a trust vests without proper planning, it may result in unexpected distributions or disputes among beneficiaries, particularly in blended families or where multiple generations are involved. In some cases, trustees may be personally liable for incorrect distributions.
Intergenerational Planning and Continuing the Trust Structure
For those looking to preserve the benefits of a trust beyond the vesting date, early planning is key. In some cases, it may be possible to establish a new trust and transfer assets across, but this must be approached with caution due to potential tax implications, including CGT and stamp duty.
While some families and business owners are shifting away from trust structures due to increasing regulation and ATO scrutiny, trusts still offer unique advantages, especially when it comes to asset protection and estate planning. However, the landscape is changing.
In recent years, there has been a growing trend of transitioning from trust structures to corporate entities. This is largely driven by growing compliance burdens, evolving integrity rules, and heightened ATO oversight. Still, with the right advice and management, trusts can continue to play a valuable role.
Planning Ahead for Vesting
The best way to avoid surprises at vesting is to plan well in advance. This is especially important for trusts in states with an 80-year limit, such as NSW, Victoria, and WA, or for clients who have inherited older trusts that may be approaching their vesting date.
Key Steps as Vesting Approaches:
- Review the trust deed: Understand the exact vesting date and what it requires.
- Engage professional advice: Work with legal and accounting experts like Equil Advisory, who specialise in trust compliance and restructuring.
- Explore asset transfer options: If a new trust is required, understand the tax and legal costs involved.
- Document everything: Ensure all trustee resolutions, asset valuations, and distribution plans are properly recorded.
- Communicate with beneficiaries: Keep all parties informed about their entitlements and potential implications.
Trusts can be powerful financial tools, but they’re not “set and forget.” When a trust vests, it can trigger significant legal and tax consequences. The key is early, informed planning, especially for trusts nearing their expiry date in states like NSW and other jurisdictions with an 80-year limit.
Whether you’re preparing for a vesting event, exploring restructuring options, or reassessing the role of a trust in your long-term strategy, expert guidance is essential.
Need help navigating trust vesting?
At Equil Advisory, we specialise in helping our clients plan for trust lifecycles, manage compliance, and protect intergenerational wealth.
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