Everything you need to know about setting up a trust in Australia

In Australia, trusts are a common way for people to look after their assets. There are many potential benefits to forming a trust, but without the right legal and business help, you could find yourself struggling to make the right choice.

What is a trust?

A trust is a business structure that represents a legal agreement whereby the trust manages assets for the benefit of others.

Why might you want to set up a trust?

There are three main reasons that you might want to set up a trust: to plan for tax payments, to protect your assets, or for investment/trade opportunities.

Protecting assets is a key consideration when setting up a trust. As with other business structures, such as a company, the trust – rather than an individual person – owns the asset. This means the asset will be safe in the event of a lawsuit being brought against an individual.

What does a trust need?

For a trust to be legally recognised, there are a number of boxes that need to be ticked. These include:

•  the settlor
•  the trustee/trustees
•  the beneficiary/beneficiaries
•  the trust deed
•  the appointor

The settlor is the person who sets up the trust and names all the people in the other positions. The settlor is often the person who owns the asset(s).

The trustee is the person, people or company who looks after the trust. They make decisions on behalf of the beneficiary, with their best interests in mind.

The beneficiary (or beneficiaries) are the person, people or companies who will benefit from the trust. These can be primary beneficiaries (who are named specifically in the trust deed) or general beneficiaries (such as future children who cannot be named at the time the trust is set up).

The trust deed is the document that sets down exactly how the trust will run, who has control and who will receive benefits (and when that will happen). Because of the nature of this document, it's important that a legal professional is involved in its creation.

The appointor is someone who has the power to add or remove trustees in the future.

What are the main types of trusts?

Although there are many types of trust available, there are two that are most commonly set up in Australia: discretionary (or family) trusts and fixed (or unit) trusts.

A discretionary trust is the type most often used by families, especially in regards to family tax planning. Beneficiaries often do not have a defined yearly entitlement, instead the trustee allocates income on an annual basis.

A fixed trust, on the other hand, has a clearly stated benefit for each beneficiary. This is often used for joint ventures.

Is a trust right for you?

Every case is different, which is why it's so important to get as much information as you can before you choose a business structure. Download our free ebook for more information about the options available or set up an appointment with our team by calling (02) 4044 1245.