The number and use of family trusts around Australia for investment purposes has grown significantly over the past decades, acting as a legitimate means and “vehicle” for the carrying on of a business or investment purposes.
However, unbeknown to many baby boomers who established family trusts, they don’t actually have an indefinite life and their life is limited by an old rule knows as the ‘rule against perpetuities’.
In a nutshell this rule means that trusts can’t live forever, hence the reason that most trusts that have been established have a life of 80 years.
Many of the trusts established by baby boomers then are now halfway through that life and in recent years there has developed a dialogue about this limitation which is now becoming a source of some angst among some investors and their professional advisers.
So, what does this mean then for the controllers of those trusts when the final whistle blows on their life?
It means that on the 80th year those trusts will vest. That is, collapse and the beneficiaries of the trust become the owners of the assets.
This occasion will be deemed in many cases to be a capital gains tax event and/or GST event, triggering the payment of what could literally be multi-billions of dollars to the Federal Government.
There are a number of options to ensure the longevity of your family trust, which we’ll discover in the next blog!