A Trust is a relationship where the Trustee holds assets on behalf of beneficiaries.
At times, the Trustee and beneficiaries may seek to terminate this association, requiring the expertise of accountants in Sydney. For example, when the assets no longer exist, the beneficiaries are old enough to look after their assets due to a family dispute, ill health, or administration costs. Or sometimes, the Trust reaches the end of its life and “vests”.
The vesting date is detailed in the Trust deed. The vesting date may be when the beneficiaries turn a certain age or up to 80 years after the establishment or commencement of the Trust (depending on which state you live in).
The Trustee is legally and personally responsible for any debts of the Trust. So the Trustee needs to be very careful when winding up a Trust as the winding-up process may result in new debts (e.g. CGT or GST).
Most Trust deeds indemnify the Trustee for any liabilities out of the Trust’s assets. But if the assets are gone, no funds could be left to pay the liabilities.
So what should the Trustee do to wind up the Trust?
- Read the Trust deed. What is the vesting date? Does the Trustee have the power to vest the Trust early?
- Decide how the Trust is to be wound up. Will the assets of the Trust be liquidated or distributed in-specie? Before the assets or cash are distributed, all outstanding debts and liabilities must be discharged (including tax, creditors and loans from banks, third parties, other family members or related parties and beneficiaries).
Where there are debts or loans owed to beneficiaries, the beneficiary may, before the vesting date, forgive that debt, or in the case of an unpaid Trust entitlement (i.e. an unpaid Trust distribution from a prior year), release the Trustee from its obligations in relation to that entitlement.
Both actions can have other tax effects on the Trust or the beneficiaries, so please get in touch with us for advice before taking any actions.
Kreston Stanley Williamson Team
*Correct as of September 2016
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
