A Trust is simply an agreement whereby a person or company agrees to hold an asset for the benefit of others. The person or company who controls the asset is known as the ‘trustee’ and those who benefit are called the ‘beneficiaries’. The creator of the trust (usually the ‘Settlor’) sets out specific terms how the assets are to be managed in a document called the ‘trust deed’.

A Trust is established by an independent person (the Settlor) who makes a gift of a sum of money (the Settled Sum, usually $10.00) to a person or company (the Trustee) for the ultimate benefit of nominated persons (the Beneficiaries) at some future time (the Vesting Day) under conditions which are evidenced in writing by the Settlor in a Deed. The Settlor is usually your accountant or lawyer because the Settlor can’t be a beneficiary of the trust.

There are four (4) main Roles within the Trust, they are the Settlor, Appointor, Trustee and Beneficiaries. 

Appointor:

The Appointor has power under the Deed of Settlement to remove and replace the Trustee as they see fit. Accordingly, the person holding the office of Appointor assumes indirect control over the whole operation of the Trust. The person who holds the office of Appointor can effectively regain control of the Trust assets by resettling the Trust Fund to another Trust.

Trustees:

The Trustees are responsible for overseeing the administration of the trust fund. A Trust requires a minimum of two natural persons or one corporate trustee, at all times. 

Beneficiaries:

Beneficiaries are defined in the Trust Deed. As the Trust is a discretionary trust (as opposed to say a fixed unit trust), no Beneficiary has a vested interest in the Trust Fund and no Beneficiary can require the Trustee to exercise his discretion to appoint income or capital in his favour. The only right that a Beneficiary has is to require the Trustee to exercise his discretion bona fide and in good faith.

Settlor:

The Settlor is the person who initiates the formation of the Trust by the provision of the Settled Sum. Apart from providing the Settled Sum and executing the Deed of Settlement, the Settlor takes no further part in the Trust operations.

A Discretionary Trust is most suited for families. A discretionary trust can result in taxation benefits and if properly implemented should not come within the general anti-avoidance provisions of the Income Tax Assessment Act 1936 (Cth). A discretionary trust may also play a significant part in an asset protection strategy. There are limitations arising under the Family Law Act 1975 (Cth) and from changes to bankruptcy laws as to the protection that is offered.

The Office of State Revenue in each state in Australia charge duty on the creation of a trust. In New South Wales, the minimum duty payable upon the creation of a Trust is $500.00. In Queensland the minimum duty payable upon the creation of a Trust is nil.