A trust is a separate legal construct that holds your assets. Essentially, you (the trustor) create a trust (usually with a trust deed), relying on someone (the trustee) to hold the assets for the benefit of one or more people (the beneficiaries). There are different types of trusts that are used to achieve different outcomes. Because of the complicated legal, financial and tax implications of trusts, even people who have a trust often do not fully understand the benefits and restrictions involved in this type of structure.

What is a Trustee?

The trustee (or trustees) can be a person or a company. In effect the trustee controls the trust, making all important decisions and controls the purchase of investments and safeguarding of the assets of the trust. However, the trustee must deal with the assets in line with the intentions of the trustor as set out in the trust deed. In this way, you can think of a trust deed as a set of instructions that guide and constrain the actions of the trustee. Of course, the trustee must also act in accordance with applicable federal and Queensland law, including specific laws that regulate trusts and tax.

What are the Benefits of a Trust?

A trust can offer many benefits, based on the type of trust chosen. Typically, someone creates a trust for one of the following purposes:

• Preservation of assets;
• Tax planning;
• Provision for minor children or vulnerable individuals (such as a beneficiary with a disability); or
• Charitable causes.

A trust can be set up to only last for a certain period of time, for instance, until a child turns 18 and has the capacity to manage their own financial affairs.

What is a Discretionary Trust?

In a discretionary trust, the beneficiaries do not have any right to receive a particular amount from the trust. The trust deed does not direct how the assets of the trust are distributed. Instead, the trustee will exercise their discretion and distribute income or capital amongst beneficiaries as they see fit.

What is a Family Trust?

A family trust is a discretionary trust established to hold a family’s assets and/or run a family business. This can provide favourable tax arrangements and asset protection. For instance, this type of trust can protect family assets from the bankruptcy of a family member. Another common reason to create a family trust is to provide a mechanism to pass assets to future generations.

What is a Unit Trust?

With a unit trust, the trustee must distribute income and capital according to how many “units” a person holds in the trust. In this way it is similar to a company in that unit holders are like shareholders, although a trust has greater flexibility. Any profits of the trust must be distributed to the unit holders at the conclusion of the financial year.

You should seek experienced legal advice if you are considering creating a discretionary or unit trust. If you need assistance, contact one of our lawyers at [email protected]  or call 07 3391 7511 for expert legal advice.