How to Wind Up a Trust

Winding up a trust is not a decision to be taken lightly, and it involves a series of actions to ensure that the process is completed correctly and by Australian law.

Whether the trust is a discretionary trust, unit trust, or another type, properly winding it up is critical to ensure that all legal, tax, and fiduciary obligations are met.

This blog aims to guide trustees through the process of winding up a trust, highlighting key considerations and steps to follow.

Understanding the Need for Winding Up

Before initiating the wind-up process, it’s important to fully understand why the trust needs to be wound up.

The decision to wind up a trust can be driven by various factors such as the trust achieving its objectives, the expiry of the trust period (as many trusts in Australia are set up for a maximum of 80 years), or it may no longer be economically feasible to continue the operation of the trust.

Identifying the reason will help in determining the appropriate course of action.

Steps to Wind Up a Trust

Step 1: Review the Trust Deed

The trust deed is the governing document of the trust and should be the first point of reference.

It will contain specific provisions regarding the winding-up process, including any required actions by the trustees and the distribution of trust assets.

Adhering to the terms of the trust deed is paramount.

Step 2: Settle Trust Liabilities

Before distributing the trust’s assets, all liabilities and debts of the trust must be settled.

This includes paying off any creditors and ensuring that all financial obligations are met.

It may be necessary to sell trust assets to cover these liabilities.

Step 3: Distribution of Remaining Assets

Once all liabilities have been cleared, the remaining assets can be distributed among the beneficiaries according to the terms of the trust deed.

This step requires careful calculation and consideration to ensure that each beneficiary receives their correct entitlement.

Step 4: Prepare Final Accounts

Preparing final accounts is an essential step in the wind-up process.

These accounts should provide a clear and comprehensive overview of all transactions made to settle liabilities and distribute assets.

The beneficiaries must approve the final accounts.

Step 5: Obtain Tax Clearance

Before finalising the trust dissolution, it is important to ensure all tax matters are settled.

This may involve submitting final tax returns and obtaining clearance from the Australian Taxation Office to confirm that no outstanding tax liabilities exist.

Step 6: Formal Termination & Documentation

The final step involves formally terminating the trust and documenting the wind-up process.

This documentation should include a statement of termination, signed by the trustees, and copies of all relevant documents, such as the final accounts and tax clearance.

This serves as a legal record that the trust has been properly wound up.

Contact Us

Winding up a trust can be a complex process, involving legal, tax, and financial considerations.

At Bambrick Legal, we specialise in trust law and estate planning, providing advice and support to trustees during the wind-up process.

Our team of legal experts is dedicated to guiding you through every stage, ensuring a smooth and compliant conclusion to your trust.

For more information about how to wind up a trust in Australia, contact Bambrick Legal today. We offer a free, no-obligation 15-min consultation for all enquiries.