Perpetuity Period Extension: Key Insights on Queensland Trust Law

Introduction

On 23 February 2023, the Property Law Bill 2023 (Qld) (Bill) was introduced into Parliament. The Bill intends to replace the existing Property Law Act 1974 (Qld) (PLA).  

The purpose of the Bill is to replace the PLA with a newer and more modernised version of the act, including the perpetuity period extension.

There has understandably been a focus on the new disclosure requirements for sellers of real property. However, the Bill also makes several important changes for trusts. 

While some sections of the Bill relating to trusts and deeds are very similar to the PLA, if the Bill passes Parliament as expected, it will completely change some of the existing provisions of the PLA. 

Execution of Deeds

The provisions about executing a deed set out in sections 46C to 46H of the PLA remain largely the same in the Bill.  

This means that deeds may continue to be signed electronically (s 50 of the Bill) and individuals and corporations continue to no longer require a witness when signing deeds (s 51 of the Bill). 

Rule Against Perpetuities

Dispositions of property to some trusts are subject to a perpetuity period to prevent those trusts from continuing forever, and to ensure that benefits eventually pass through to beneficiaries. Currently, the PLA provides that the perpetuity period is no longer than 80 years from the time the disposition was made. 

For a trust, this means that the property can only be held on trust for up to 80 years from the date the trust was established.  

For trusts established under a will, this means that the property can only be held on the trust for up to 80 years from the date the testator died.  

Section 201 of the Bill provides that the perpetuity period will be 125 years or a shorter period if one is set out by the terms of the trust. This perpetuity period extension effectively increases the allowable time for trusts from 80 years to 125 years.

However, the date each trust terminates or vests will ultimately depend upon what is provided in the trust deed. The trust deeds usually set out a termination date or vesting date or a mechanism for calculating the termination date or vesting date.  

Section 216 of the Bill provides that if a trustee has a power, under the terms of the trust, to vary the vesting date, then it may vary the vesting date to a date not later than 125 years from the date of disposition of property under the trust.  

Section 217 of the Bill provides that if the trustee doesn’t have the power, under the trust deed, to vary the vesting date, then if all the beneficiaries of the trust are adults and of full capacity, the beneficiaries may execute a deed to vary the vesting date to a date not later than 125 years from the date of disposition of property under the trust.  

As the Bill has not yet been passed in Parliament, it doesn’t currently apply. However, if as expected Parliament does pass the Bill, it will be relevant to consider whether it is possible and worthwhile extending the vesting date of the trusts to 125 years. For many, it will be worthwhile if it allows the vesting, and any duty and capital gains tax consequences, to be deferred. 

Distributions from one trust to another trust

Often trust deeds will provide that related trusts and companies are potential beneficiaries of the original trust. As a result, we often see instances where the original trust (Trust A) will make a distribution to another related trust (Trust B).  

Generally, Trust A and Trust B will be established at different times and have different termination or vesting dates. For example, Trust A may have been established 2 years prior to Trust B. If both trusts had the maximum 80 year perpetuity period, Trust A would be required to terminate or vest 2 years before Trust B.  

Section 202 of the Bill provides that a disposition of property under a trust to a person is only valid if the property vests in the person before the end of the perpetuity period. This means that a distribution from Trust A to Trust B could be invalid because the perpetuity period for Trust B ends after the perpetuity period for Trust A.  

However, section 203 of the Bill sets out what is referred to as the “wait and see rule”. This section provides that a distribution is not invalid under section 202 of the Bill merely because the property may vest in the person after the end of the perpetuity period provided it is possible for the property to vest in the person before the end of the perpetuity period.  

This means that a distribution from Trust A to Trust B isn’t automatically invalid merely because the perpetuity period for Trust B is later than the perpetuity period for Trust A. Instead, the effect of the two rules provides that if it is possible for Trust B to distribute the distribution it receives from Trust A within the perpetuity period for Trust A, that distribution will not be invalid, provided the distribution to Trust B vests in a beneficiary before the end of the perpetuity period of Trust A.  

However, if Trust B does not distribute the distribution it receives from Trust A within the perpetuity period for Trust A, then the distribution will be void ab initio. This means that the distribution will be void from the beginning as if it never occurred.  

The provisions in the Bill regarding this matter largely reflect the existing provisions in the PLA. However, it is a timely reminder that the trustees of a trust should keep detailed records about distributions from one trust to another trust and when those distributions are distributed to beneficiaries.  

If the trustee doesn’t want to maintain detailed records about trust distributions, another option is to vary the terms of the trust so that the termination dates for all relevant trusts are the same. Provided the termination or vesting dates are changed to the earliest termination or vesting date, this would remove any concerns about distributions from one trust to another being outside the perpetuity period.  

How Can We Help

Once the Bill is passed, we can assist with varying the trust deed to extend the termination or vesting date to 125 years from the date the trust was established or the date of death of the testator (for trusts established pursuant to a will).  

We can also assist with varying the termination or vesting date of trusts where distributions are made from one trust to another trust.