Legal Tip 179: How Long can a Trust Last for?

Discussion in 'Legal Issues' started by Terry_w, 6th Jul, 2018.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Legal Tip 178: How Long can a Trust Last for?

    Generally trusts can only last for a maximum of 80 years. After this period they must ‘vest’ which means the assets held by the trustee belong to the beneficiaries as outlined in the deed. Where the trust has vested but the trustee still owns the assets legally they are considered to hold those assets as bare trustee for the beneficiaries.


    Why do trusts have to die?

    It is due to a very complex old English law known as the ‘laws against perpetuities’. These laws were put in place to prevent property being held on trust forever.

    The law was generally something like a trust would breach the laws against perpetuities if it vested later than ‘a life in being plus 21 years’. This meant something like a period of someone alive today when the trust is made plus 21 years. Usually someone was named in the deed to link this to – such as the last survivor of King Henry VIII.

    This common law of England was imported into Australia. But it is confusing and messy so legislation was developed to replace the Common Law. Trust law is state based law so each State of Australia has different laws on the perpetuities period.


    Most states limit the life of trusts to 80 years – whether created by will or by someone alive (inter vivos).


    In NSW a trust must vest within 80 years from the date of settlement. S7 Perpetuities Act 1984 (NSW). PERPETUITIES ACT 1984 - SECT 7 The perpetuity period


    South Australia is the only state that has abolished the laws against perpetuities – but that does not necessarily mean a SA trust can last more than 80 years. I will cover this next time.


    Keep in mind that the trust deed could make a trust vest prior to it reaching 80 years of age.
     
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  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Terry - Some lawyers in other states suggest their trust is not subject to perpetuities but the trust isnt a SA trust and may even have been subject of property in other states or even a trustee in another state etc. Are you aware of any cases which has found that the perpetuity rule isnt a concern ?? I say this cause I know the Reinhardt family have a LOT of $$$ and they couldnt get around it (WA) so I have to assume a family trust isnt going to do any better. Do you think that its fair to assume that until you have personal legal advice that you shoudl assume perpetuity IS a limit ?

    Also as a tax adviser I'm often very wary of Trust A (settled 1969) distributing income to Trust B (settled 2017) as this may be invalid in some cases if the distribution breaches the rule of perpetuities.

    Are these issues a concern ?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes it is just a marketing gimmick i think. You may the trust subject to SA law and die before the 80 years is up so that no one can sue you.
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I had a gut feeling. IISTGTBT

    If it sounds too good to be true.......................Its my theory about tax schemes and promoters in all fields whether property spruikers, fancy loan arrangements, tax schemes or fancy structures. One common feature with fraud and someone waiting to relieve you of some of your $$$