Vest a Family Trust deed - wind up and terminate

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Checklist of information required Sample document

Introduction
FAQ

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.

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 trust 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.

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 should I wind up the 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

Can I end my Trust by 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.

Are there any CGT or stamp duty issues to wind up?

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 stamp (transfer) duty in any Australian State or Territory.

Remove UPEs from the balance sheet?

Before you wind up your Family Trust the balance sheet must show zero. No assets and no liabilities.

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.

ATO’s position – 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’.

Build this Vest Family Trust deed on our website. You get:

1. Terminating Family Trust deed (just print and sign)
2. Minutes for your Accountant’s due diligence file
3. law firm Letter of Advice

Have a look at the Sample document and there are many training videos and hints to help you as you build the document.

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)
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’ 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

Because you are building your Deed of Variation at our law firm’s website you:

1. retain legal professional privilege

2. are protected by our law firm PI insurance

3. receive legal advice

4. by law have us act in your best interests, over our own

Only a law firm provides the above.

‘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.

As a taxation law firm we ensure that you do not suffer a ‘resettlement’ by applying:

1. Clark’s case

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

3. ATO’s withdrawal in 2012 of its Statement of Principles on the Creation of a New Trust. Plus its release of the ATO’s Decision Impact Statement

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