Trust Set Up: Frequently Asked Questions
What is the difference between a Family Trust and a Unit Trust?
A Family trust, also known as a Discretionary Trust, give the trustee the discretion to decide who recieves distrubitons, how much and how often payouts occur. They tend to also include clauses that allow distribution to extend to family members of the Specified Beneficiaries.
A Unit Trust (also known as a Fixed Trust) differs from a Family Trust in that the trustee generally does not hold discretion over the distribution of assets to beneficiaries.
These structure divide the trust property into units, similar to shares of stock. Each beneficiary (known as a “unit holder”) owns a given number of those units, and at the end of each year, he or she receives a distribution from the trust, based on the number of units held. Ideal when multiple families are involved, Unit Trusts operate somewhat like a company.
What is the role of a Settlor?
The settlor must hand over the settled sum to the trustee to be held on the terms of the trust for the benefit of the beneficiaries.
The settlor does not have to reside in Australia, however they must be present when the trust deed is settled because he/she is responsible for the trust asset becoming vested in the trustee.
Once they sign the deed, therefore putting the trustee in charge of the trust assets, the settlor then steps out of the picture.
It is advisable to limit the settlor’s role in a trust to the initial establishment of the trust and payment of the settled sum.
To avoid the perception that the settlor’s declaration of trust is revocable, the settlor should be unrelated to the trustee and the beneficiaries of the trust.
Should I have a Individual or Corporate Trustee?
It is a common practice to have corporate trustees for family trusts for asset protection. This ensures the limitation of the trustees’ liability to the corporate asset.
Generally, corporate trustees are shell corporations with no, or minimal, assets. The trustee is personally liable for the trust’s liabilities. Therefore, it is common for trusts to have corporate trustees to limit the trustees’ liabilities to the assets of the corporation.
Advantages of switching/implementing a corporate trustee structure include:
- they can exist indefinitely, unlike an individual trustee;
- you do not have to change the legal ownership of the trust’s assets when the directors or shareholders of the corporate trustee change. In contrast, you have to change the legal ownership of the trust’s assets when an individual trustee changes;
- the shareholders of the corporate trustee can effectively control the trust by appointing the directors of the corporate trustee;
- asset protection; and
- limited liability.
Therefore, corporate trustee can be very beneficial and allow the trust further longevity.
You can set up a company to act as corporate trustee here.
If you have already set up a trust with an individual trustee and wish to switch, you can have a Deed of Variation drafted here.
How to Set Up a Trust?
The process required is simply please email us on info@kgbm.com.au we will get back to with the details need to set up.
If needed, we also provide advice as to what structure is best for your needs and your trust, so feel free to contact us at 1300 998 248 .
After receiving the deed and relevant structures, certain states in Australia require the payment of stamp duty.
Stamping can be arranged either directly through the relevant revenue authority in your state or territory us.
NOTE : The above information is intended to be general in nature and should not substitute professional tax advice. We encourage that you contact one of our Tax Specialists to discuss your personal circumstances
