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Trusts

Trusts are legal structures in which assets (the “trust property”) are placed (“settled”) under the legal ownership of trustees for the benefit of beneficiaries (the “beneficial owners”). Wills and superannuation funds are forms of trusts.

The trust property can be money, real estate, shares and so on. Different types of trusts include a family discretionary trust, a unit trust, a fixed trust, the property trust and the testamentary trust. The latter is set under a will.

A trust can be set up by anyone, but of course, you will need the assistance of a lawyer. Your accountant or financial planner can help you find a lawyer who can give you assistance with establishing the trust.

The usual purpose of a trust is income tax minimisation, enabling the income from the trust to be distributed to family members (beneficiaries) on low marginal tax rates.

Terms explained
But what do all these terms mean?

The beneficiaries are the people who stand to benefit from the distribution of the trusts assets and income. Basically, they will be the ones receiving the assets or income.

Of course, the person who set up the trust can also be a beneficiary. 

Assets are the property that is contained within the trust.

The trustee must distribute the assets and the income of the trust according to the rules outlined in the trust deed by the person who set up the trust (the “set law”). The trustee must be someone whom you trust and may be more than one person.

People may look at trusts not only for their tax minimisation potential, but also because of the potential asset protection they offer.

Testamentary trust

For example, in the case of a testamentary trust, which is set up upon your death, you may place assets in for the benefit of children (minors) are of a certain age at which they can manage assets for themselves outside such a structure.

In the case of a testamentary trust, it is often recommended to have three trustees as this will remove the chance of there being a stalemate when it comes to making decisions about the assets after the person who set up the trust has died.

Or, if your son or daughter marries, assets might be placed in a trust until the marriage has lasted for a predetermined period of time, giving you some assurance the other party does not run off with the assets from the marriage should it fail.

Do the research

Before considering setting up a trust, make sure you read as much as you can about them and don't forget to seek professional advice from a lawyer.

Trusts are complex, expensive to establish and difficult to unwind. Speak to your accountant or financial planner about finding a lawyer who can assist you with setting up trusts.

For advice you can trust, book a complimentary first appointment with Switzer Financial Services today. 

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Trusts explained

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