Understanding Trusts: A Guide
What is the meaning of a “Trust”?
A trust is an obligation imposed on a person or other entity to hold property/assets for the benefit of beneficiaries. Any Trust doesn’t have a legal personality.
Why do you need to consider a Trust?
In general terms, Trusts are initiated for asset protection, ensure limited liability, charity, or investment purposes, and estate planning instruments (to protect minor/disabled dependents and other purposes when appropriate).
Elements of a Trust
- Trustee and beneficiaries must be defined.
- Trust must execute a Trust Deed.
- Trust should be named as a Trust.
- Trust must have an ABN (Australian Business Number)
- Trust should have its Tax File Number (TFN)
A trustee could be a natural person or an entity. The minimum number of trustees is one, and in all jurisdictions (except for Queensland and Victoria), there is no limit on the maximum number of Trustees. In Victoria, the number of trustees who may be appointed to a settlement of land, not more than four.[i]
Beneficiaries are the parties who gain the benefit of the said Trust, and they may be appointed as Trustees as well.
A trust deed is a very significant document that must be drafted by a professional. It contains all important details of the Trust to be executed, including details of the appointing Trustees and their powers, details of beneficiaries and their terms, details of the assets (if applicable), exemption clauses, and other terms and conditions to comply with law and meet the settlor’s intention.
Types of Trusts
- Discretionary Trusts (e.g., Family Discretionary Trust)
- Unit Trusts
- Fixed Trusts
- Excluded Trusts
- Charitable Trusts
- Implied or constructive Trusts (e.g., Testamentary Trust)
- Will Trusts
Tax Implications of a Trust
Each Trust has its tax obligations based on its type. Different types of Trusts exist, and each has specific tax obligations under the law. The trustee is the responsible person or entity for paying all applicable taxes and fulfilling reporting requirements. There are different land tax rules for various trust types if you declare a trust over real estate property.
We recommend that you obtain legal advice before implementing a Trust that suits your requirements/purpose. Please feel free to reach us for any assistance.
[i] Trustee Act 1958 (Vic),s 40
