What is a discretionary trust or family trust?
Simply speaking, it is where one or more persons of a company (the Trustee) control and look after assets for the benefit of a group of people (the Beneficiaries).
What does discretionary mean?
This means that the trustee has a discretion to whom to pay income and often capital from among that group of people who are the specified beneficiaries of the trust. Generally, the exercise of the discretion can mean that one beneficiary gets everything and the others get nothing or the financial benefit is shared among some equally or unequally. This can vary from time to time and year to year, again in the trustee’s discretion.
Why you may need a discretionary trust?
Trusts have been around for longer than companies so they are well engrained in society and law. They are useful for various reasons including:
- Asset protection
- Income splitting
- Ensuring assets are not personally owned and do not pass under a Will
- Being very flexible without many of the restrictions applied to companies
Who should I put in control of a discretionary trust?
Which individual or group of persons you put in control of a trust in the role of trustee and also in the role of appointor, is a very important decision. You need to take into account their age, health, knowledge, expertise and, of course, trust.
A trustee is required to:
- deal with the trust assets and often invest them;
- to determine which of the group of beneficiaries is to receive income each year and in what shares;
- to lodge the trust’s tax return where income is received;
- decide about winding up of the trust and distribution of capital.
An appointor is an important “check and balance” for a trustee’s role and often has the power to “hire and fire” the trustee.
The transition of these roles whether they are “hardwired” or otherwise is really important as trusts in most states of Australia can last up to 80 years.
Can I change the trustee, beneficiary or terms of the trust?
The answer is “it depends”. It depends on the number of issues such as the powers in the deed, whether the law allows it and whose consent is required. It is important to be very careful when doing anything so as not to result in a resettlement which can have significantly adverse stamp duty and tax consequences.
How does a discretionary trust fit in with your Will?
The assets of the trust do not pass under your Will. However, aspects of control such as a trustee and appointor may be covered in your Will. As trustees and appointors have significant power and discretions how you deal with this is naturally very important. Contact the team at Aitken Lawyers today for the best advice on 02 8987 0000.