Vest Family Trust – how to wind up old Family Trust

Family Trust - Vesting Deed Book Cover
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Wind up Family Trust – how to get rid of a Discretionary Trust

Vest Family Trust for Centrelink? Wind up and get rid of a Discretionary TrustDeed of vesting a family trust wind up a family trust get rid of a family trust deed

You have finally retired and applied to Centrelink for a pension. Unfortunately, Centrelink takes issue with the fact that you have an old discretionary trust that was created 30 years ago. It hasn’t been used for years. There is no money left in it. The trust has a nil value. It has no assets and no debts.

What can you do?

You need to formally wind up (vest) the trust to close down this unused structure. Build this Vesting a Discretionary Trust deed on our law firm’s website.

Vest and windup a Family Trust to reduce yearly costs

Every year, you pay to prepare Trust tax returns for trusts that are no longer in use. Perhaps your Trust was set up for a specific purpose. But that time has passed.

Is the Trust no longer required? Vesting your trust and closing it saves you money. Perhaps an opportunity may arise in the future for your old trust? Rarely is reusing a trust worthwhile. A Discretionary Trust Deed is like a car, it requires regular updates. These are called Deeds of Variation. The cost to set up a new trust is usually less expensive than updating an old Discretionary Trust deed. And a new trust does not have any baggage or festering problems with it.

Re-use my old Family Trust Deed?

The rule of thumb is to get rid of old Family Trust deeds, companies and Unit Trust deeds. This as often and as quickly as possible. If any of those vehicles get down to a zero balance sheet take advantage of getting rid of them.

You may think you know what your own trusts have been up to over the years. But that is often not the case. Also, laws and tax rules change.

Also, trust deeds go out of date. On average in Australia, every 6 – 7 years your trust deed needs to be updated. You can update Family Trust Deeds here. But it is generally more expensive. A new trust deed is less expensive. 

Wind up Discretionary Trust you don’t want? Get rid of a Trust.

You have an old Family Discretionary Trust. Your accountant or financial planner suggests that it is more trouble than it is worth. The Vest Family Trust Deed is simple and straightforward. Just build this Terminate a Discretionary Trust deed.

Why dissolve a Discretionary Trust?

• The Trust has achieved its original purpose
• It has no assets (if it has debts do a Debt Forgiveness Deed first)
• The controllers of the trust don’t want to continue
• The trust has reached its vesting date

How to terminate a Family Trust?

1. Distribute any capital that is left
2. Build a Debt Forgiveness Deed to forgive loans and Unpaid Present Entitlements owed to beneficiaries
3. Prepare any outstanding tax returns
4. Build and sign the Windup Family Trust Deed and the minutes

Get rid of my Family Trust via a ‘minute’?

A ‘minute’ is a record of something you have done. It is just recording an event. In contrast, a Deed of Variation to vest your Trust is the actual document which vests and winds up your Trust.

The Discretionary Trust Deed started the trust. The way to terminate the Trust is to do another Deed. A minute is not good enough. It is not best practice and your accountant would not be prepared to take the risk of just using a ‘minute’. A ‘minute’ does not satisfy the ATO or other government departments. See Taxation Ruling TR 2018/6.

Any CGT or stamp duty issues to dissolve a family trust?

Provided you follow the procedures set out in our covering letter (which comes with the Deed of Variation) there are no Capital Gains Tax issues. There is also no ad valorem stamp (transfer) duty in any Australian State or Territory.

Forgive UPEs before you vest the Family Trustvest family trust wind up discretionary trust

Build and sign a Deed of Debt Forgiveness to get rid of Family Trust UPEs.

Get rid of Unpaid Present Entitlements before you terminate the Family Trust

Before you wind up your Family Trust the balance sheet must show zero. No assets and no liabilities of the family trust you are about to get rid of.

However, often there are Unpaid Present Entitlements (UPEs) on the Family Trust balance sheet. A UPE is created when your Family Trust distributes income to a beneficiary. The beneficiary rarely sees the money. Instead, the beneficiary merely ‘lends’ the money back to the Family Trust.

As the years go by the UPE builds up. It is not uncommon to have UPEs where the Family Trust owes millions of dollars to beneficiaries.

A UPE is a liability on the Family Trust balance sheet. To get rid of the UPE the beneficiary forgives the ‘loan’. The beneficiary signs a Deed of Debt Forgiveness. Build that document here.

Get rid of beneficiary loan accounts before you terminate the Family Trust

Question: Our Trust has a $60K capital loss. This is the balance of the beneficiary loan accounts. Is this the debt to be forgiven?
Answer: Along with non-financial and non-produced asset transactions your accountant may include debt forgiveness in the capital account. We, however, are not accountants. You need to talk with your accountant.

Question: So if my husband and I are forgiving the debt would we each be able to claim the capital loss on our own personal tax returns of the amount forgiven?
Answer: You need to speak with your accountant. I would have thought not. You forgave the debt for ‘natural love and affection’. Read the letter of advice that comes with the Deed of Debt Forgiveness. And speak to your accountant.

Question: Do we purchase two debt forgiveness agreements? And then this Family Trust Deed of vesting?
Answer: Yes. You need to build those three documents.

ATO’s view of closing a family trust – Taxation Ruling TR 2018/6

ATO Taxation Ruling TR 2018/6 sets out the views on the income tax consequences of a trust vesting. Our vesting deed complies with the ruling.

A trust’s ‘vesting” or ‘termination’ date is the day on which the beneficiaries’ interests in the property of the trust become ‘vested in interest and possession’.

Stamp duty and CGT when you close the family trust

Your documents to close a family trust are drafted so that there is no stamp duty, transfer duty nor Capital Gains Tax.

Stamp Duty and Transfer Duty are State-based taxes. However, in all Australian States and Territories, they do not apply to the closing of a family trust prepared by Legal Consolidated Barristers & Solicitors

Capital Gains Tax is a tax levied by the Federal Government. Again there is no CGT payable on these vesting documents.

However, we confirm that you have not instructed us to provide you with any taxation advice.

Centrelink vs closed Family Trust

To get Centrelink, you move your assets into your Family Trust. In 2002 the laws changed and Centrelink and the ATO started data-matching. I remember it well. I was sitting on the Tax Institutes’ Education Committee and organised a paper to be delivered. Try as I might I couldn’t find a taxation lawyer to present the paper. So I had to write and deliver the paper myself.

Centrelink deems you to own 100% of the Family Trust assets

Family trusts are flexible. There are over 400,000 beneficiaries in an Australian trust. But you generally only distribute to your immediate family. Centrelink’s specific assessment rules do not cope. They are far too broad-reaching. Centrelink has an unrefined and unfair catch-all set of attribution rules. If you had any involvement with a family trust as an appointor, trustee or one of the 400,000 beneficiaries, you:

  • are assessed as owning all the family trust assets; and
  • you are deemed to earn the corresponding income. 

This is under Centrelink’s attribution rules.

Sadly, little old grandmas, destined to get none of the assets out of their children and grandchildren’s family trusts are caught up in this. Centrelink is harsh and unsympathetic.

We had one disabled nephew client (who did not even know he was a potential beneficiary) attacked by the shameful and heavy-handed Centrelink.

Sadly, even family trusts with no assets in them attract the enmity of Centrelink. Wind up the Family Trust and escape the Centrelink attacks.

If your Family Trust still has assets and you want to keep it going then talk with your accountant about changing the Trustee and Appointor.

Does my Family Trust finish after 80 years?

A Family Trust deed often states a date that it must end. This is usually 80 years. Stupidly it may be less.

The Family Trust deed often calls this the ‘vesting date’ or ‘termination date’.

On vesting, the beneficial interests in the property of the trust become fixed. This is to avoid breaching the ‘rule against perpetuities’. If your Family Trust has reached its vesting date then build this Vesting Deed kit.

Legal Consolidated Family Trust Deeds do not have a vesting date for South Australia. Legal Consolidated South Australian Family Trusts can go on forever.

Also if the 80 year limitation period is ever rescinded, in a particular State, then the Legal Consolidated Family Trust vesting periods are extended to infinity. This is automatic.

My old Family Trust deed already allows the winding up of the Family Trust

Q: My Family Trust Deed already confers on the trustee the power to terminate the Discretionary Trust at any time. Therefore, what additional benefit does your Family Trust Vesting Deed pack provide?

A: The Family Trust Vesting pack contains 5 items. One of them is a Family Trust Winding up deed. But this Family Trust Winding up deed does a lot more than just amend the old Family Trust deed to allow for a winding up.

You are correct. Most Family Trust deeds and Unit Trust deeds already have the power to end the trust. The Deed of Variation to wind up a Family Trust contains many thing. This includes expressly allowing you to terminate the Family trust and the process to follow.

Also, often the vesting powers in the old trust deed do not allow ‘earlier’ vesting. Or the old deed requires a vesting process which may no longer be sanctioned or best practice. The Family Trust winding up pack complies with the ATO’s latest rulings.

Further, the power to end the trust in the old trust deed is only part of the process. The Family Trust vesting pack contains five documents:

  1. Law firm letter of Advice on ending the Family Trust:
    • signed by a partner of our law firm, on our law firm letterhead
    • setting out the process and tax consequences of the winding up
    • confirmation and statement that there is no resettlement for tax purposes
    • confirmation that the Family Trust is authorised to be ended in this manner set out in the Family Trust winding up kit
    • Capital Gains tax issues are addressed
    • what to do with the capital and assets in the Family Trust in compliance with the ATO
    • when a Family Trust final tax return is required and the wording the ATO requires
  2. Family Trust Vesting Minutes:
    • containing the required resolutions to end the Family Trust
    • required by your accountant’s due diligence file
  3. Vesting of a Family Trust Deed:
    • updating the Appointor and Trustee, in consequence of any audit by the ATO
    • allowing earlier winding up of the Family Trust
    • augmenting the Family Trust’s Trustees powers to allow all things necessary to vest and terminate the Family Trust
    • no ‘partnership’ relationships to reduce the threat of Trustee, Appointor and Default Beneficiaries being joint and severally liable for the winding up
  4. Checklist to end a Family Trust:
    • Step by step guide
  5. Family Trust Certificate of Vesting

The old Family Trust Deed already fully sets out the process and authorises the ending of the Family Trust

Q: The old Family Trust Deed confers on the Trustee a wide power to amend any provisions of the Trust Deed. This includes the Vesting Date. It also sets out how the Family Trust is to be terminated. What additional benefit does your Family Trust Vesting Deed pack provide?

A: The Family Trust was created by a Deed. Entities and trusts created by a deed should be ended by a deed. The other method to use is to end the Unit Trust via Minutes. However, few accountants and lawyers would recommend ending a trust via only minutes. And, I have never known an accountant or lawyer courageous enough to put in writing that minutes are enough.

Instead, in years to come, if the Family Court, Bankruptcy Court, Centrelink or the ATO come to review the affairs of the Family Trust then you have the documentation. This is signed off by us, as your lawyers.

Our Family Trust vesting pack follows best practice. It complies with the ATO’s latest rulings. It is for clients that like to sleep at night, and not take risks or short cuts. The Family Trust vesting pack provides peace of mind.

Best to lodge the final Family Trust tax return after the Family Trust Vesting pack is signed

Q: Our accountant prepared the tax return for the Family Trust for the financial year that just ended. He intends to notify ATO the Family Trust is not lodging tax returns in the future. We now need to build the Family Trust Vesting pack. Is it necessary to prepare a return for the period for the following financial year? Or can we simply rely on the tax return for last years financial year?

A: Best practice is to sign all the documents relating to the Family Trust Vesting Deed and then lodge the final Family Trust tax return. But if the final Family Trust tax return has already be correctly lodged then you do not need to do another one. But you do need to let the ATO know that the Family Trust is finished. Our letter of advice sets out how the accountant does this.

To end a Family Trust you must have a balance sheet showing nil

Q:. Our accountant has financial statements for the Family Trust for the last financial year. If we wish to build your Family Trust Vesting Deed pack is it necessary to prepare financial statements for the following financial year? Or can we simply rely on the financial statements for the last financial year.

A: A balance sheet (statement of financial position) provides a snapshot of your assets and liabilities. It shows the Family Trust’s net worth. This is at a single point in time. This is unlike other financial statements. Such as profit and loss reports. These only give information about your Family Trust over a period of time

The ATO is not so interested, from a CGT point of view, as to financial statements. Rather it wants to see a Family Trust balance sheet showing zero. Before you wind up your Family Trust you need to have your accountant prepare a Balance Sheet showing the Family Trust has (or will have) no assets.

Who signs the Family Trust winding up minutes?

Q:. In your FAQ section for the Family Trust Vesting Deed, you state as to the Minutes: “Pass a resolution stating the that the trust is vested (terminated)”. Two questions:

  • Who needs to pass this resolution? The Trustee, Appointor or Default Beneficiaries?
  • Are these Minutes included as part of your Family Trust vesting package?

A: The minutes are in the Sample. Have a look at the Sample to see the answer to that question. And, of course that Minute is in the Family Trust winding up pack. Have a look at the Sample for what you get.

How do I get free legal advice when building the Family Trust vesting deed?

Start building the Family Trust Vesting Deed. Read the many hints for each question. Answer as many questions as you can. And then telephone the law firm for a good chat. If you want to speak to me personally you can always get me on my personal mobile: 0477 796 959.

We have been the business of winding up Family Trusts deeds since 1988. Your ‘unique’ questions about your individual circumstances regarding the winding up of your Family Trust may already be addressed in the many hints you can read during the building process.

Build this Closing Family Trust deed on our website

Your Family Trust vesting kit includes:

1. Letter of advice – signed by a partner of Legal Consolidated Barristers & Solicitors
2. Minutes – for your Accountant’s due diligence file
3. Termination of Family Trust Deed – just print and sign, it amends your Family Trust deed to allow it to be vested and wound up
4. Certificate of Vesting

Have a look at the Vest Family Trust sample document. Plus there are many training videos and hints as you build the Family Trust vesting kit.

How to vest and end other trusts

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1What is a Vesting Deed?

You have finally retired and applied to Centrelink for your Age Pension.

Unfortunately, Centrelink takes issue with the fact that you have an old trust that was created 30 years ago. It hasn’t been used for years. There is no money left in it. The trust has a nil value. It has no assets and no debts. What can you do? You need to formally wind up (vest) the trust to close down this unused structure, you can do so with this Vesting Deed

Why should I get rid of the trust?

– The Trust has achieved its original purpose
– It has no assets
– The trust has reached its vesting date

What do I need to do to get rid of the trust?

1. Distribute to beneficiaries the trust capital.
2. Payout all trust liabilities. Or get them to forgive all debt with a Deed of Debt Forgiveness. This includes any existing or future
tax liabilities that arise as a result of the termination of the trust.
3. The Trustee must pass a resolution determining that the trust is to be vested (terminated).
4. The final accounts of the trust, including a final tax return, must be prepared.

Once this is done, you can build our Deed of Vesting of a Trust and build a set of documents which allows you to vest and close the family trust.

After building this document on our website you are emailed:

1. Family Trust – Deed of Variation of Vesting
2. Minutes
3. law firm Letter of advice


2What do I need to do?

What do I need to do to terminate the trust? Get rid of a trust.

1. The capital of the trust must be distributed in accordance with the trust deed.
2. The Trustee must satisfy any existing liabilities of the trust. This includes any existing or future
taxation liabilities that arise as a result of ending the trust.
3. The Trustee must pass a resolution determining that the trust is to be vested (terminated).
4. The final accounts of the trust, including a final tax return, must be prepared.
5. Build this document


3Do you need the Family Trust name?

To update your Trust, we need to first identify it. We do this by referring to:

1. The Trust name (e.g. Jones Family Trust)vesting a family trust
2. Date the Trust Deed, that established the Trust, was signed
3. The Settlor’s name.


4What is the Family Trust name?

Every trust has a name. Sadly, they are generally quite boring. E.g. Smith Family Trust, named after Mr Smith.

The trust name is a ‘nickname’. It is not registered anywhere. It just helps you and your accountant identify your Trust.

Take out your Deed of Trust that first started your Trust. Have a look at the front cover. It often has the name of your Trust. It repeats in the body of the Deed as well. Check any subsequent Deeds of Variation, to make sure that your Trust didn’t change its name.

Be careful to not confuse the Family Trust name with your Trustee. Your Trustee (e.g. XYZ Pty Ltd) is not your trust name.


5Family Trust or Discretionary Trust?

There is generally no difference between a:

– Family Discretionary Trust

– Family Trust

– Discretionary Trust

We, tax lawyers, tend to call them ‘Discretionary Trusts’. This is because we like the fact that every year the Trustee has the discretion to distribute income to different beneficiaries.

While, our friends the accountants, usually call them ‘Family Trusts’. This is because only mum and dad and the immediate family operate a family business or hold assets in a ‘Family Trust’. If people out of the immediate family are involved in the business then a ‘Family Trust’ is not appropriate.


6No resettlement when you deal with our law firm

Advantages of building your Family Trust vesting deed on our law firm’s website:

1. retain legal professional privilege

2. protected by our law firm’s Professional Indemnity insurance

3. receive legal advice

4. by law have us act in your best interests

Only a law firm provides the above.

Resettlement of a Family Trust

‘Resettlement’ happens when you alter the Trust to such a level that it becomes a new trust. You would then suffer Capital Gains Tax, Stamp Duty and other issues. Resettlements are bad.

As a taxation law firm, we ensure that you do not suffer a ‘resettlement’.

Your Discretionary Trust vesting kit complies with:

1. Commissioner of Taxation v Clark and the subsequent
release of Taxation Determination TD 2012/21.

2. High Court decision in FC of T v Commercial Nominees [2001] HCA 33

3. ATO’s (now withdrawn, but still loved by many at the ATO) Statement of Principles on the Creation of a New Trust. Plus its release of the ATO’s Decision Impact Statement.



Legal Consolidated Barristers & Solicitors Australia Brett Davies

Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm

National:   1800 141 612
Mobile:      0477 796 959
Email:       [email protected]