Most Trusts are established to run for a period of 80 years, but provide the trustees with the ability to wind up the Trust earlier - this is done by appointing a winding up date (a vesting date) earlier than the 80 year anniversary.
Trusts are established for a range of purposes, including protection of assets, (whether from creditors, future partners, or children's partners), spreading income, and perhaps assisting with applications for Government support such as residential care subsidies (for further details on the advantages of trusts, refer to our article on 5 August 2019 "Are family trusts still relevant today?"). In addition, the new Trusts Act 2019 imposes further obligations on trusts and trustees that may result in a decision to terminate early.
Trusts should be reviewed regularly to ascertain whether or not they are still serving a useful purpose, if not, then it is possible to distribute out the trust assets and wind up the Trust.
Before the assets of a Trust can be distributed, it is necessary to consider the circumstances of all of the beneficiaries in order to determine who of the beneficiaries should receive assets from the Trust. If appropriate the beneficiaries should be consulted with to obtain their views before proceeding.
In the event that the decision is made to proceed with the winding up of the Trust then it is essential to consult with the Trust's accountant or tax advisor to ascertain whether there are any accounting or taxation consequences (for example the extinguishment of losses or imputation credits) that may apply in the event of the distribution of trust assets. In addition, account should be taken of the Brightline Test (imposing potential taxation liability on the transfer of assets within 5 years - in the event that it is likely that a trust property distributed to a beneficiary may be on-sold within 5 years of the distribution, consideration should be given as to whether or not assets should be transferred at this stage).
If the decision is made to wind up the Trust then the trust assets can be distributed to beneficiaries by either utilising the distribution of capital powers contained in the trust deed, or alternatively appointing a final distribution date and distributing the trust assets on that date. In most instances assets are distributed utilising the capital distribution method as, in appointing the distribution date, it is likely that the trust assets will need to be distributed pursuant to the instructions contained in the trust deed which are likely to be inflexible.
If you are a trustee or a settlor of a Trust and are reflecting on whether or not the Trust has now run its course, or should be wound up, then we recommend talking with us about the options before proceeding.