What a Trust Is
A trust is a legal structure, not a separate legal entity like a company. In this arrangement, a trustee holds assets for the benefit of others, known as beneficiaries. The operation of the trust is governed by the trust deed, while the appointor holds the ultimate power to appoint or remove the trustee. Essentially, a trust separates legal ownership (held by the trustee) from beneficial ownership (held by the beneficiaries).
What a Discretionary Trust Is
A discretionary trust is a structure where the trustee has full discretion regarding who receives income or capital distributions. Unlike other structures, beneficiaries do not have fixed rights to the assets. Instead, the trustee decides how to distribute the income each year and determines the specific share each person receives. This structure offers significant flexibility for tax planning and accommodating changing family needs.
What a Family Trust Is
A family trust is simply a specific type of discretionary trust established to benefit a single family group. The beneficiaries typically include parents, children, grandchildren, and related entities. Technically, a "Family Trust" is a discretionary trust that has made a Family Trust Election (FTE). This election locks the trust into a specific family group for tax purposes in exchange for certain concessions. In practice, many people use the terms "family trust" and "discretionary trust" interchangeably.
Key Roles in a Trust
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Settlor: The person who creates the trust and provides the initial settlement sum. They generally have no further role after the trust is established.
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Trustee: The individual or company that legally owns the trust assets. They make the day-to-day decisions, distribute income, and must always act in the best interests of the beneficiaries.
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Appointor: The person who holds the power to hire, fire, or replace the trustee. This is the ultimate control position within the trust.
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Beneficiaries: The individuals or entities who receive income or capital from the trust. They do not hold legal title to the assets.
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Trust Deed: The legal document that acts as the "rulebook." It defines the trustee’s powers, lists the class of beneficiaries, and dictates how income can be distributed.
Benefits of Using a Discretionary or Family Trust
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Flexible Distributions: You can direct income to beneficiaries who are on lower marginal tax rates.
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Asset Protection: Because beneficiaries do not own trust assets in their personal names, these assets are often protected from personal creditors.
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Tax Planning: The structure supports tax-effective strategies ideal for families and business owners.
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Succession Planning: A trust can survive the original owners, allowing wealth to continue from one generation to the next seamlessly.
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Capital Gains Planning: The structure allows for the strategic management of capital gains across various beneficiaries.
Disadvantages to Consider
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There are initial setup costs and ongoing annual maintenance fees.
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Trustees carry significant legal risk and responsibility.
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Trusts cannot easily retain profits without paying top marginal tax rates (unlike companies).
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The ability to distribute losses to beneficiaries is restricted.
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Record-keeping must be meticulous and accurate.
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Annual distribution resolutions must be legally documented by the end of the financial year.
When a Trust Works Well
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When you own a family business.
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When family members are in different tax brackets.
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When you hold investment assets and require flexibility in how returns are distributed.
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When asset protection is a priority.
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When you are planning for long-term multigenerational succession.
When a Trust May Not Suit You
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If your primary goal is to retain profits within the entity to fund working capital.
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If you need to bring in external, non-family investors.
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If you prefer parties to have fixed, guaranteed entitlements.
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If your structure is simple and you require very low administration.
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If a complex trust deed is unnecessary for your specific financial situation.
Trusts Compared to Companies and Unit Trusts
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A Company: Retains profits and pays a flat company tax rate.
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A Unit Trust: Provides beneficiaries (unitholders) with fixed entitlements to income and capital.
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A Discretionary/Family Trust: Gives beneficiaries no fixed rights, offering flexibility instead.
Each structure suits different goals. The right choice depends entirely on your specific tax profile, control requirements, and future plans.
How Trinity Accounting Practice Helps You
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We review existing trust deeds to confirm your structure is compliant and optimized.
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We advise on the critical roles of trustee, appointor, and beneficiaries.
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We handle the setup of new Family Trusts and Discretionary Trusts.
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We guide you through tax-effective distribution planning.
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We prepare trust tax returns and necessary trustee resolutions.
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We advise on long-term asset protection and succession planning.
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We help align your trust structure with your broader business or investment goals.
What You Should Bring to Your Meeting
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Your Trust Deed.
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The last two or three trust tax returns.
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A list of current beneficiaries.
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Your business or investment plans.
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Any specific concerns regarding tax, risk, or distributions.
Next Steps
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Book a meeting with Trinity Accounting Practice.
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We will review your current structure.
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We will map out your best strategic options.
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We will simplify the legal and tax process for you.
Contact Trinity Accounting Practice
Beverly Hills, NSW Specialists in cash flow forecasting, reporting, Xero advisory, and business growth support.
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Office: 159 Stoney Creek Road, Beverly Hills NSW 2209
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Phone: 02 9543 6804
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Availability: After-hours and weekend appointments available.
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Book Online: https://calendly.com/ramy-hanna
Our Specialized Divisions:
VCFO Australia: Our Virtual CFO division provides strategic financial management, budgeting, forecasting, and compliance support for growing businesses and not-for-profits. https://www.vcfoaus.au/
Nexus Wealth Partners Pty Ltd: Our mortgage brokerage division assists clients with home loans, refinancing, and business finance. https://nexuswealth.au/
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