Trusts

A trust is a vehicle used to hold assets on behalf of a range of beneficiaries.

The American Law Institute's Restatement of the Law of Trusts has identified the trust as:

Fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee.

In Australia the most common forms of trusts are what are described as discretionary trusts and unit trusts.

Discretionary Trusts

A discretionary trust is established when a creator, known as the settlor, gifts money to the trustee to hold on behalf of the beneficiaries of the trust. Due to Australian income tax law the settlor and the settlor’s children are prohibited from benefiting under the trust. One of the most important roles in a discretionary trust is that of the Appointor. This is the person or persons with the power to remove and replace the trustee.

Discretionary trusts (including succession trusts) established in Australia today should have the following key features:

Allow the Trustee to benefit so that the Trustee has general powers under the Perpetuities Act 1984,
Provide that the Trustee can determine the income of the estate be income according to ordinary accounting concepts,
Contain a Karger v Paul clause to prevent the need for the Trustee to give real and genuine consideration to all beneficiaries (i.e. Wareham v Marsella and Owies v JJE Nominees Pty Limited),
Contain a perpetuity period clause that provides for a perpetuity period equal to the statutory period without amendment restrictions to the perpetuity period,
Contain a Proper Law clause that allows for the changing of the State governing the Proper Law,
Contain clauses that allow for streaming of capital gains and franked dividends,
Allow for amendments including the conversion to a succession trust.

Unit Trusts

A unit trust is established when the initial unit holders provide the Trustee with money for the initial units. Unlike a discretionary trust a unit trust doesn’t have a settlor or Appointor. The unit holders are the ones that have the power to remove and replace the Trustee.

Unit trusts established in Australia today should have the following key features:

Allow the Trustee to benefit so that the Trustee has general powers under the Perpetuities Act 1984,
Allow for an absolute right of redemption where the unit holder is a self-managed superfund or in the case of a NSW Land Tax Unit Trust,
Provide that the Trustee can determine the income of the estate be income according to ordinary accounting concepts,
Contain a perpetuity period clause that provides for a perpetuity period equal to the statutory period without amendment restrictions to the perpetuity period,
Contain a Proper Law clause that allows for the changing of the State governing the Proper Law.

It is important when establishing a trust that the needs of the client and their family be taken into consideration. The majority of advisors acquire deeds from shelf company providers and simply pick a one size fits all deed based on its cheap price. For a vehicle to hold significant assets this should be avoided.

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Customised Deeds

Firms are approaching MGS for customised trust deeds that:

Provide for the distribution of income and capital as per the persons will,
Provide a platform for property developers to develop, sell and retain property,
Assist is cloning under Queensland duty laws and the CGT concession,
Move property and businesses in Western Australia without attracting duty or income tax,
Restructure property in New South Wales, Victoria and Queensland without duty, income tax or GST.
Provide a platform for the safe bank of Mom and Dad,
Assist with the Landholder provisions in a particular State or Territory,
Converting trusts to fixed unit trusts with the 'relevant criteria' for New South Wales,
Amending deeds to enable the use of the changes made by Tax Laws Amendment (2011 Measures No. 5) Act 2011 (Cth).

If you have any queries regarding converting your existing trust deed or ordering a new trust please Contact Us.