What Is a Trust?
A trust is an arrangement where a trustee holds and manages property for one or more beneficiaries. The trustee controls the trust assets but must deal with them according to the trust deed or will.
Discretionary or Family Trust
A discretionary trust allows the trustee to decide which beneficiaries receive income or capital and how much they receive. These trusts are commonly used by families to operate businesses, hold investments and plan for succession.
Unit Trust
A unit trust divides beneficial ownership into units. Each unitholder has an interest based on the number and type of units they hold. Unit trusts are often used when unrelated parties invest together in a business or property.
Fixed Trust
A fixed trust gives beneficiaries defined entitlements to income or capital. The trustee generally has little or no discretion over each beneficiary’s share. Some unit trusts operate as fixed trusts.
Testamentary Trust
A testamentary trust is created by a will and begins after the will-maker dies. Instead of passing directly to a beneficiary, an inheritance is held and managed by a trustee. These trusts may assist with asset protection, tax planning and the long-term management of an inheritance.
Bare Trust
A bare trust exists where the trustee holds legal title to an asset for a beneficiary who has the beneficial interest. Bare trusts may be used in nominee, custodial and property arrangements where legal and beneficial ownership are separated.
Choosing the Right Trust
The appropriate trust depends on who should control the assets, who should benefit, whether ownership interests need to be fixed and what should happen following death or incapacity.
Trusts can have significant legal, tax, duty and land tax consequences, particularly when Victorian property is involved. Legal and tax advice should be obtained before establishing a trust, acquiring property through one or changing a trust deed.