The ATO estimates Australia has 800,000 trusts controlling over $3t in assets and with $3.5t in wealth about to transition from the incumbent generation over the next 20 years.
Therefore, there needs to be consideration for the impending vesting date of Australian family trusts.
What is a vesting date?
The vesting date is also referred to as the termination date. It refers to the time when the trust end and assets are distributed to the beneficiaries by the trustee.
With the exception of South Australia, family trusts legally come to an end on their vesting date, which in most states and territories around Australia is 80 years after inception. In most Australian states and territories (excluding South Australia), family trusts have a maximum lifespan of 80 years, due to the Rule Against Perpetuities. This rule, stemming from English law, prevents assets from being indefinitely tied up in a trust, potentially leading to disrepair or neglect. The 80-year limit ensures that the trust's assets are eventually distributed to the beneficiaries and the trust concludes. A large number of trusts with vesting dates approaching in the next 10-15 years.
To ensure a smooth transition for the next successors in a family business, advisors have been focusing on:
- Increasing the financial acumen of the Rising Generation
- Introducing family governance
- Creating robust succession plans
- Educating on the importance of asset protection
- Ensuring estate plans are detailed and include all roles within the family structure
Is there another consideration for this wealth transfer?
The biggest risk of losing wealth or family businesses in this transition is the impending family trust vesting and the potential capital gains tax payable that results after an 80-year vesting period. This situation might lead to family businesses being sold to cover the tax, or the family wealth potentially being transferred to the ATO rather than being passed down to the next generation.
The Government should begin to focus on the intricacies of family business and offer rollover relief when a family trust vests to allow the family business and family wealth to prosper for generations to come and to support families as they transition from owners to stewards.
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If you’d like to discuss family trust vesting dates and how it could impact you, please reach out to our national team of accredited family business advisors for a conversation now.
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