What happens when a Discretionary Trust Vests?

There is a lot of confusion as to what happens when a Discretionary Trust reaches its vesting date, in particular:

  • Does the trust automatically wind up?
  • What happens to the assets of the trust?

Interestingly enough, from a legal position it is in fact the beneficiaries' interest that vests on vesting date, not the trust itself.

On that date, the beneficiaries' interests in the assets of the trust become fixed. The trustee then holds the trust property for the absolute benefit of those beneficiaries who are specified in the Trust Deed as the takers on vesting. This does not mean that the trust itself comes to an end. In other words, the trust becomes a fixed trust rather than a discretionary trust.

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