Do you have a 1960's era trust ?

I recently encountered a issue that is a ticking time bomb for many people who have older trusts. 1960- 1970s era or earlier - That said modern era trusts will also inevitably face similar issues.

Typically trust deeds and state law governs what is often called a perpetuity period. Trusts were drafted with that in mind and often contain rules which may limit the life of a trust. The trust will likely contain a vesting rule or even be governed by state law.

A further concern for these old trusts is that the deed is lost. This can irreparably harm the belief that a longer perpetuity period applies if the evidence of the vesting date is lost. An undocumented trust may not even be a trust, certainly not one that can defend a claim by a beneficiary !
In the absence of the deed the trust may vest or the ATO could adversely find against the trust existence or a beneficiary may seek to gain access to what the allege is a share of ptust property. No deed = no proof either way. A serious legal problem as determining who the ultimate beneficiaries are could be a minefield. Very costly Supreme Court actions could be required.

The typical time frame for this issue can be 80 years, subject to the deed, state and legal advice. Its also possible that the vesting date can be harmed during the life of the trust (ie loss of the deed)

Why is this a problem ?....Most old trusts still exist either because they still hold significant wealth. Often pre-CGT wealth too. Sometimes the capital is bound into the trust and vesting limits may apply. eg Only grandchildren can benefit, not parents.

Pre-CGT or post CGT assets acquired by the trust may vest. And that is a CGT event. In its simplest form a pre-CGT asset may become a post-CGT asset and may even no longer be trust property but be a beneficiary entitlement. This could trigger tax, income tax, CGT, stamp duty and loss of past losses and this may have a major cashflow impact. In complex cases beneficiaries may demand their share of trust property (as evident n the Gina Reinhart case) if the trustee has no legal basis to hold assets on trust.

Any trust which was established by people who are now deceased needs review from time-to-time, perhaps not later than each 10 years if it has existed for 40 or more years. And NOT by an accountant. A lawyer should undertake the process and the advice should then be shared with the tax adviser.

1. Where is the deed ? Is it even complete ? Is it a copy ?
2. Who are the past and current parties to the trust and are they alive ?
3. What vesting and perpetuity date and rules may apply to the trust ?
4. What are the present assets and liabilities of the trust, their value and is it compliant ?
5. Should the terms of the trust be varied ? If so, how ?

 

In NSW the perpetuities act came in about 1984. So any trust established under NSW law before this date will have the old common law apply to its life time.

The oldest one that I have encountered was from about 1980s. Very hard to read the old documents with the outdated style and fonts etc

 

And the mistyping from the typewriter. Or faded brown ink. Retaining a old deed is almost a job for a curator. Old deeds also often need updating for loads of changes eg adopted kids, remarriage etc. Many old deeds can be poorly written too for example contrary to modern law eg same sex relationships etc. eg clauses refer to wife, not spouse. As for defacto....