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 Trust specifies the terms of how the assets are to be managed, and the rights and obligations of parties to the Trust.

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 lawyer because the Settlor can not 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.

Trustees:

The Trustees are responsible for overseeing the administration of the Trust. 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 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 and the law prevents this person being a beneficiary of the Trust.

As the name suggests, a Discretionary Trust allows the trustee discretion in determining each year, if any, or which beneficiary receives any income from the activities of the Trust. A Trust may be involved in trade or it may be non-trading and simply hold property for instance.

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.

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. A Trust Deed should be stamped for duty paid, prior to acquiring assets to minimise duty payable.

If you would like to know about stamp duty implications for other states, we would be pleased to advise you.

In New South Wales, Discretionary Trusts are charged a flat rate of 1.6% of the taxable value of any properties held by the trust irrespective of the size of the interest (there is no land tax threshold that personal ownership of property enjoys). You can read more about land tax in NSW here. 

In Queensland, Discretionary Trusts are liable for land tax if the total taxable value of the freehold land held for that trust is $350,000 or more. You can read more about land tax in Queensland here. 

If you would like to know about land tax implications for other states, we would be pleased to advise you. 

This is only a brief outline of the law on trusts, please contact Mr Mark Glaser on 1300 000 770 for an appointment to learn more about trusts.