Trust Information

In the past, trusts were the investment vehicle of the rich, however in recent times, many Australians from all walks of life have begun using trusts to hold their assets.

Why do people invest using a trust?

  • Tax benefits: You may be able to reduce your tax bill by distributing income to family members with lower taxable income.
  • Asset protection: Trusts allow you to control & receive income from assets without having them in your name. This may protect these assets in the event that you are sued or go through a divorce.
  • Estate planning: Some trusts may allow you to effectively pass assets on to future generations without paying excessive taxes or going through estate disputes.

We recommend that you seek financial advice from your accountant to find out what benefits you may receive. Specialist asset protection lawyers can assist you in structuring your assets correctly to prevent losses.

Types of trusts

There are many variations on a standard trust and many people have their own private and unique arrangements. However, the most common types of trusts that we deal with are:

  • Discretionary trusts: the trustee determines which beneficiaries receive the trust funds and how much they receive.
  • Unit trust: the trustee divides the trust funds between unit holders, according to the number of units that they have.
  • Hybrid trust: this is a mix between a discretionary trust and a unit trust. The beneficiaries still hold units, but the trustee has discretion to distribute funds to any unit holder they wish to.
  • Family trust: this is similar to a discretionary trust, but the beneficiaries are related.
  • Self-Managed Super Fund (SMSF): this is a trust that is established by people who want to manage their own superannuation.

How do you set up a trust?

You can set up almost any standard trust (discretionary trust, family trust, unit trust) online using Cleardocs, Shelfco, Law Central or Corporate Express.

You may be able to set up a hybrid trust or SMSF trust online, however many people prefer to use an accountant.

Once the trust deed has been created and signed the settler places a nominal sum (usually $10) in the trust.

The deed can then be sent to the state government for stamping, and the trust then becomes fully operational.

Getting expert financial advice

We strongly recommend that you see an accountant and seek financial advice before setting up a trust.

Online trusts are a cost effective way to set up a trust, however they will end up costing you more in the long run if the trust is not set up in the right way.

How can a trust own assets for someone else?

Assets are held “in trust” for beneficiaries who receive income and other benefits from these assets, without actually owning them.

The trustee is the one who manages the trust for the beneficiaries.

For example, if you buy a property in a trust then the title deeds may show, “ABC Pty Ltd As Trustee For The Smith Family Trust”.

In some states such as Queensland, only the name of the trustee is shown on title e.g. “ABC Pty Ltd”.

Do you want to obtain finance for your trust? Speak to our mortgage brokers on 1300 889 743 or enquire online today and we can help you get approval for a loan.

Understanding trust jargon

Here is a list of trust related terms & jargon that you might come across:

  • Appointer: the appointer has the power to fire the trustee and appoint a new trustee. The appointer is specified in the trust deed.
  • As Trustee For (ATF): this is a legal term meaning that the asset is owned by one entity as trustee for another or that the entity is acting as trustee.
  • Beneficiary: the person(s) that receive benefits from the assets held in trust. This is generally in the form of trust distributions.
  • Company constitution: if the trustee is a company then there is a company constitution guiding how the company is to be run and what rules it must follow.
  • Corporate trustee: a trustee that is a company.
  • Director of trustee: the director of the trustee company.
  • Held in trust: assets owned by the trust on behalf of the beneficiaries.
  • In Its Own Capacity (IIOC): a legal term meaning that a trustee is acting on behalf of itself. For example, a trustee may apply for a loan in the following name “ABC Pty Ltd IIOC & ATF The Smith Family Trust”.
  • Individual trustee: a trustee that is a natural person, i.e. not a company.
  • Settlor: the person who settles (opens) the trust by depositing the funds into it.
  • Stamp duty: a fee paid to your state government when opening a trust.
  • Trust deed: the legal document governing the operation of a trust. The trust deed names the trustee, beneficiaries, settlor and appointer and contains the rules that they must follow when dealing with the trust.
  • Trust distributions: income or assets distributed from the trust to the beneficiaries.
  • Trust registration: the act of stamping and registering the trust with the state government.
  • Trust: a legal instrument used by one party (the trustee) to hold assets on behalf of another (the beneficiaries).
  • Trustee: the person or company that runs the trust and manages the assets on behalf of the beneficiaries.
  • Unit holder: the owner of units in a unit trust.
  • Unit: a share of a unit trust which denotes entitlement to a share of the assets within that trust.

Trustee duties & powers

The powers that the trustee has are listed in the trust deed, and as such, they vary from trust to trust.

Generally, the trustee has few limits on its powers, as long as it is following its duty to act in the best interests of the beneficiaries.

Lenders will always check your trust deed to make sure that the trustee has the power to apply for loans for the trust.

We occasionally see trust deeds that were specifically set up to borrow money, known as Property Investor Trusts (PITs) that lenders cannot lend money to.

Please choose your accountant carefully to avoid this problem!

Tax for trusts

As a general rule, trusts are required to lodge a tax return just like a company or a person.

Trusts are charged the highest possible level of tax which is why income is usually distributed to the beneficiaries at the end of each financial year.

Taxation rules for trusts are complex and vary between different trust types.

Contact your accountant for specific financial advice for your trust.

Applying for a trust loan

You can apply for a home loan to buy an investment property in a trust. Our company has mortgage brokers that specialise in helping people borrow money using their trust.

Please contact us on 1300 889 743 or enquire online to discuss your needs with one of our brokers.