Vest Family Trust – how to wind up old Family Trust
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 Trust
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.
See a full free sample of the Family Trust vesting deed. Press “Sample” above.
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 and Unit Trust deeds as often and as quickly as possible. If any of those vehicles get down to a zero balance sheet take advantage of just 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. 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Also, trust deeds go out of date.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 than building a new trust deed.
Wind up Discretionary Trust you don’t want? Get rid of a Trust.
You have an old 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 do terminate 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
End 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 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
Taxation Ruling TR 2018/6 sets out the views on the income tax consequences of a trust vesting. Our 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 are 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 are 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 you Family Trust still has assets and you want to keep it going then talk with your accountant about changing the Trustee and Appointor.
Build this Closing Family Trust deed on our website
Your Family Trust vesting kit includes:
1. Letter of advice – signed by the law firm
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
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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Update the Family Trust for Bamford streaming only:
Or, update Bamford streaming PLUS update the rest of the Deed:
Update for Bamford streaming PLUS the Deed PLUS update the Appointor & Trustee:
Just update the Trustee:
Or just update the Appointor:
Set up a new Family Trust Deed:
Below prepare the Annual Trust Distribution Minutes:
Deal with Division 7A (loan or UPE from your company to the Family Trust):
Forgive the ‘loan account’ and UPEs (loans from humans to Family Trust):
Change the name of your Family Trust:
Wind up and vest the Family Trust, when you no longer want it:
Telephone us for free legal advice on building this Family Trust Vesting Deed.
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]
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
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
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)
2. Date the Trust Deed, that established the Trust, was signed
3. The Settlor’s 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.
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.
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.