Trusts

Protecting your assets

Trusts

Trusts are a legal relationship whereby a trustee is appointed to hold and manage assets for the benefit of the beneficiaries. Though trusts are not considered to be a legal entity, they are treated as such for tax purposes. 

When properly used, trusts can help to plan finances, protect assets, minimise tax and limit liability. The use of offshore trusts can also provide a higher level of protection and privacy due to the nature of the regulations in that jurisdiction. 

There are different types of trusts available and this area of law can be highly complex. You should seek expert legal advice to ensure that the trust is established and managed properly. Our highly experienced business lawyers are able to assist with a wide range of trust issues and help you to understand the implications for your business and personal circumstances. 

Main types of trusts

Aditum Lawyers can help you determine which type of trust is most appropriate for your needs and how to properly establish and manage it. The main types of trusts available are:
  • Fixed Trusts, which are the most simple and widely used form of trust. These specify fixed assets to be distributed to fixed beneficiaries. This gives beneficiaries a clear right to force a trustee to administer the trust in accordance with its terms, which is useful in avoiding disputes and ambiguity. A 50% discount for capital gains tax is applied to any assets received under the trust.
  • Discretionary Trusts, differ from fixed trusts in that the beneficiaries do not have a fixed interest in the assets. Trustees are given the power to decide how, when and to whom the assets of the trust are dispersed. The trustee can also be held liable for any debts incurred or losses sustained by the trust. The same 50% tax discount is available on disbursements made under a discretionary trust and the assets held by the trust will be protected from potential creditors and claimants. This is because the beneficiary has no fixed interest in the assets and therefore no right to lay claim to.
  • Hybrid Trusts, as the name suggests,  offer a combination of fixed and discretionary trusts where the beneficiaries have a fixed interested in the assets while the trustee has discretion over their distribution.
  • Charitable Trusts are established for charitable purposes and due to the public nature of these trusts, they are closely monitored and scrutinised. Charitable trusts do not have to be wound up after 80 years and they can confer considerable tax benefits.
  • Superannuation Trusts are established to provide for the beneficiaries after they reach the retirement age of 65. All superannuation funds in Australia are examples of superannuation trusts and they are closely regulated by federal legislation. Self-managed superannuation provides an individual with greater control over their investment and the costs of administering the trust can be lower than the fees charged by public funds. Superannuation trusts carry high compliance obligations and can require continuous management.
  • Testamentary Trusts are established to hold assets until an individual dies. This trust is created through a will and is distributed at the discretion of the trustee. Testamentary trusts are useful to ensure a person’s assets are passed on in accordance with their wishes and also confer some tax benefits.
  • Bare Trusts allow a trustee to hold assets but the beneficiary retains full control and has an absolute right to the assets of the trust. Bare trusts do not provide the same level of asset protection for this reason.
  • Unit Trusts confer units of entitlement in the assets of the trust to the beneficiaries, much like shares in a company. They are usually established where individuals are pooling money for business and investment purposes. The beneficiaries interest in the trust is fixed and can be sold and traded. For this reason it does not offer the same level of asset protection as other trusts, however, the 50% discount on capital gains tax still applies.
Our experienced Sydney business lawyers can assist you with a wide range of trust related matters such as drafting and establishing a trust, varying a trust deed, appointing and removing trustees and beneficiaries, deciding which trust model to use, trustee obligations, trust compliance, asset protection and other general trust issues.

How can Aditum Lawyers help you?

Aditum Lawyers are dedicated to helping you in the way you need it. We don’t just take the time to understand you legal matter, but your entire business model and how best to work with you. Contact us today for a confidential discussion about your trust law needs on (02) 8593 8326 or submit an online enquiry to get started.

Trusts FAQs

A trust is not a legal entity, however it is viewed as such by the ATO. A trustee can carry on a business for the trust and the trust must obtain an ABN. As many as 5% of businesses in Australia are through a trust.

In addition to any legal and accounting fees for setting up the trust, you may also need to pay stamp duty, depending on where the trust is established. You can find information with the relevant state government bodies by following the links below:

The trustee  is appointed to legally own and manage the trust property. This could be a natural person or a company, which is called a corporate trustee. Being appointed as a trustee carries obligations, responsibilities and potentially a high level of risk. You should seek legal advice before being nominated as a trustee.

An appointer is responsible for appointing the trustee. They have the power to remove the trustee or appoint replacements in cases of death, incapacitation or removal. 

The settlor transfers the first property to the trust and must be unrelated to and receive no benefit under the trust. This can usually be a friend, lawyer or accountant. 

Finally, the beneficiaries, receive the benefit of the trust property.

A trustee can be one of multiple beneficiaries under a trust, but they cannot be the sole beneficiary. This is because they would essentially be holding property for the benefit of themselves.

Using a company to act as trustee can be useful in so far as it can limit liability and offer greater asset protection. It is best to use a new company that has not previously traded to ensure the company has no outstanding liabilities that could effect the trust assets. 

If the company goes into liquidation there is a risk that the assets of the trust could be sold to satisfy creditors. This area of law is nuanced and requires expert legal advice.

Establishing trusts in offshore jurisdictions can provide greater asset protection and privacy as well as confer tax benefits. This is because the regulations in other jurisdictions may limit the potential legal actions creditors can take against the trust or the information that can be obtained about the trust.