Trust vesting on death and excepted income

One downside of holding assets in a discretionary trust is they aren't part of your estate when you die and so can't end up in a testamentary trust with the associated tax benefits (excepted income - so children beneficiaries can be taxed at adult rates).

But an accountant mentioned to me that you could have a clause in the trust to automatically vest to your estate on your death, and then it can end up in a testamentary trust. Terry_w wrote about something similar:

I asked another accountant about this. He discussed briefly with a lawyer and they think that if the trust vests into your estate on death, it would likely be considered unrelated to the estate, and so any income from those assets would not be excepted. It is different to life insurance or a super fund because the deceased is the only beneficiary in those cases - but for a discretionary trust the deceased doesn't have as much of an entitlement before death.

Who is right? Or is this a grey area?

 

about 4 years ago they tightened up s102AG.

I think there is a possibility it will be ok if it is an automatic vesting - not if the trustee uses discretionary powers.
Something you need legal advice on and consider whether to apply for a private ruling.

If you get it wrong it would bring forward CGT for not much benefit.

 

Can also be cgt triggers and duty issues. Is the beneficiary absolutely entitled prior to death?