What is a trust?

A trust is a type of business structure that holds income and/or property for the benefit of others (beneficiaries). A trust is an individual or a company that is appointed with powers contained in a trust deed (legal document). A trust states exactly what rules/obligations are in place for the property held for your beneficiaries. A trust can be an attractive option to manage and protect assets and to reduce tax liability.  

There are two types of trusts: discretionary or unit trusts.

1. A discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust are not fixed, but are determined by the details of the trust document. This type of trust is often referred to as a family trust.

2. A unit trust is a trust established for generally un-related parties that hold an asset together, such as a large property, shares or own a business. A unit trust is where the rights of the beneficiaries to income and capital are fixed.

When setting up a trust you need a trust deed; which is the legal document stating the rights of the beneficiaries.

Trusts require a trust deed which needs four components to exist:

1. A trustee – the individual or company who is in charge of the trust.

2. A beneficiary – the individual or company that benefits from the trust in some way. They may acquire some sort of income or capital set out in the trust deed.

3. Trust property – the asset/s of the trust deed, such as cash, securities, real estate and/or a business

4. An equitable obligation on the part of the trustee to hold the property

Advantages of a trust:

– More privacy than a company

– Flexibility in distributions among beneficiaries

– Trust income is generally taxed as income of an individual

Disadvantages of a trust:

– The structure is more complex

– A trust can be more expensive to establish and maintain

– Trustees can be personally liable

– When/If you sell your assets into a trust, you no longer own them. They are then bound by the context of the trust deed

How do I set up a trust?

At InfoChoice we advise you seek advice from a specialist. These are the steps that they will be able to help you with:

1. Select a trustee and beneficiaries

2. Draft the trust deed

3. If you are setting up a unit trust, it may require other documentation. E.g Application form of units, certification for units helps and register of unit holders.

4. Settle the trust – This requires the deed to be signed by the settlor and an initial settlement sum to be given to the trustee

5. Trustee to sign the trust deed

6. Stamp duty may be required on the trust deed

7. Apply for an ABN and TFN – necessary if you are opening a bank account

8. Open a bank account for the trust

Setting up a trust can be a complex process and will require legal advice and/or a solicitor. At InfoChoice we advise that you always seek legal guidance when setting up business structures to make sure everything is correct and in order.

Ready to take the next steps? Get your business up and going with a business loan and business credit card today.

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