What Are Trusts? Understanding The Basics
Trusts are a business structure whereby a grantor imposes an obligation on the trustee to manage and control assets for the beneficiaries. Trusts can be formed by individuals or businesses for financial planning, asset protection, investing and estate planning.
Definitions:
Grantor – The person that contributes money and/or assets into the trust
Trustee – The individual or organisation responsible for managing the assets and administrative duties of the trust
Beneficiary – The individuals, organisations or charities that receive financial benefit from the trust
Trusts are complicated structures and require an Australian Business Number (ABN), annual administrative obligations to be met and if its annual turnover is in excess of $75,000, a Tax File Number (TFN). There is a wide range of trust types, depending on one’s circumstances; some are revocable and others are irrevocable. For this reason, it’s imperative to appoint professionals to act as the trustees to ensure the right trust is selected and all obligations are fulfilled correctly.
Main Types of Trusts
Discretionary Trust
Most commonly used for tax planning and asset protection, these trusts give the trustees complete discretion over how and when the income from the trust will be distributed between beneficiaries.
Fixed Trust
In contrast to a discretionary trust, fixed trusts do not offer the trustees the ability to exercise discretion. Rather, each beneficiary is entitled to a fixed percentage of income/the assets.
Charitable Trust
Trusts set up to provide donations to nominated charitable organisations.
Superannuation Trust
Superannuation trusts enable financial planning for retirement. All superannuation funds in Australia are trusts.
Testamentary Trust
A trust for estate planning that only comes into effect following the death of the grantor.
Hybrid Trust
A combination of a discretionary and fixed trust.
How Can Wisdom Help?
Trusts require a considerable amount of planning and understanding to be formed and to operate effectively. Wisdom Business Consultants can assist you in selecting a trust that is appropriate for you. From there, our legal team can create the trust so you can rest assured that your financials are being managed responsibly.
References
- Mach, D. ‘The 5 Types Of Trusts In Australia You Need To Know’, Box Advisory Services, Online, 2020, https://boxas.com.au/small-business-handbook/types-of-trusts-australia/ (Accessed 25 May 2022)
- Andrade, J. ‘A Guide To The Different Types Of Trusts’, OpenLegal, Online, 2020, https://openlegal.com.au/a-guide-to-the-different-types-of-trusts/ (Accessed 25 May 2022)
- Estate Street Partners, LLC. ‘What’s A Trust? Grantor, Trustee, Beneficiary’, Estate Street Partners, LLC, Online, [no date], https://www.ultratrust.com/trust-fund.html (Accessed 25 May 2022)
- Small Business Commissioner, ‘What Is A Trust?’, NSW Government, Online, 2019, https://www.smallbusiness.nsw.gov.au/get-help/business-basics/what-trust (Accessed 25 May 2022)
Australian Government, ‘Trusts’, Australian Government, Online, 2019, https://www.ato.gov.au/General/Trusts/ (Accessed 25 May 2022)
