What happens when a trust vests?

Every trust deed nominates a vesting date, the day on which the beneficial interests in the trust property are finally determined. In most jurisdictions the maximum perpetuity period is 80 years, though Queensland moved to 125 years for trusts created from 1 August 2025, many deeds nominate an earlier date, and South Australia has abolished the rule against perpetuities (although its Supreme Court can still order interests to vest after 80 years). The starting point is always the deed: the vesting date, and what happens on it, are whatever the deed says they are.

The most common misunderstanding is that vesting brings the trust to an end. It ordinarily does not. As the Commissioner explains in Taxation Ruling TR 2018/6, vesting does not of itself terminate the trust, cause the trust property to be transferred to anyone, or require the trust to be wound up. What changes is the character of the beneficiaries’ interests. Before vesting, the takers are typically objects of a discretion. On vesting, the interests of those entitled under the deed become fixed, and the trustee holds the property for them on those fixed terms until it is actually distributed. The trust relationship continues; the trustee’s discretion to choose between the general class does not.

Nor does vesting necessarily trigger a CGT event. Whether one happens, and which one, depends on the interests the deed creates on vesting. CGT event E5 happens when a beneficiary becomes absolutely entitled to a CGT asset of the trust as against the trustee, which will not always be the outcome of vesting, particularly where the property vests in more than one taker, or in shares of a fund rather than in identified assets. A variation to the trust that amounts to a resettlement raises separate questions under CGT events E1 or E2. The practical consequence is that the tax outcome of vesting cannot be stated in the abstract. It has to be worked out from the deed.

What vesting does change, immediately and irreversibly, is the trustee’s room to move. After the vesting date the trustee can no longer distribute income or capital among the wider discretionary class, and income derived after vesting belongs to the takers on vesting. Distributions made to anyone else after that date may be invalid as a matter of trust law and may be treated as such for tax purposes. Just as importantly, the Commissioner’s position is that a vesting date cannot be extended once it has passed. An extension has to be dealt with before the date arrives, and only if the deed confers a power wide enough to support it.

That makes the timing of a review the whole game. Where a vesting date is approaching, the questions to settle are what the deed nominates as the vesting date, who the takers on vesting are, whether the variation power is broad enough to extend the date without effecting a resettlement, and what the tax and duty consequences of either course would be. Mercanti v Mercanti [2015] WASC 297 is the standing reminder that two deeds in the same family group can give different answers, because the breadth of the variation clause differs.

CoSec Partners can locate and reconstruct the deed chain, identify the nominated vesting date and the takers on vesting, and prepare a deed of variation where the variation power supports one, drafted and signed off by Key Legal, an independent external law firm. The tax and duty consequences of vesting or of varying a deed are advice we do not give: they belong with the client’s tax adviser or with Key Legal, and we will coordinate with either.