Trust

Trusts are a favoured structure in Australia for carrying on a business or an investment activity primarily due to their flexibility, as well as the asset protection and taxation advantages they offer (although a trust may arise in many different situations, such as on death, or even being deemed
to come into existence by a Court).

A trust is not a separate legal entity but is, instead, a relationship where a person (the trustee) is under an obligation to hold property for the benefit of other persons (the beneficiaries).

Therefore, as a general rule:

The trustee is the legal owner of the trust property (e.g., the trustee is the registered owner on a land title); and

The beneficiaries hold the beneficial interest in the trust property.

Other persons are also likely to have a role in the creation, or ongoing administration, of the trust.

Key Points

Getting trust structures right – the first time!

Who should take on the key roles in a trust, such as Settlor, Trustee, Directors and Shareholders of a Corporate Trustee?

Who should be the appointor? The role of appointor should be carefully considered when the trust is first established.

Although the trustee controls the assets of the trust and the distribution of income, the real power and control of the trust generally lies with the appointor. This is because they have the power to remove and appoint the trustee, which accordingly provides them with ultimate ‘control’ of the Structuring with trusts. When drafting the trust deed, extreme care must be taken when choosing who should be the appointor of a discretionary trust.

Comparison Of Trust Structure

Factor

Distribution flexibility

Income Splitting

Asset Protection

Use of Losses

Ability To Stream Distributions

Beneficiaries easily transfer their interest

Interest deductions available for loan of borrowed funds to trust

Discretionary Trust

Yes

Trapped

Yes - care needs to be taken when streaming franked distributions and capital Gains

Possibly, if interest charged to trust

Unit Trust

Limited to issuing different classes of units

Yes

Limited - assets of the trust are protected from claims by creditors of unitholders and assets of unitholders are protected from claims by creditors of the trust. But the unitholder's units are not protected from creditors of the unitholder.