Creating a Discretionary Trust

Bartley Partners provides advice to Adelaide companies on the creation of discretionary trusts.

A Trust is a relationship where a Trustee (in the case of a business, this should also be a company) carries on business for the benefit of other people (the Beneficiaries). The company that acts as Trustee should not be involved in any other business but solely acts as Trustee.

For example, your Corporate Trustee may carry on a business for the benefit of a particular family and distribute the yearly profit between them.

A Trust is not a separate legal entity. A Trust may be Discretionary (i.e., the trustee decides how profit will be distributed among beneficiaries), or have fixed interests (i.e., it will benefit certain people in predetermined proportions).

Advantages of a Discretionary Trust

  • A trust provides asset protection and limits liability in relation to the business, provided a corporate trustee is also in place.
  • Trusts separate the control of an asset from the owner of the asset and so may be useful for protecting the income or assets of a young person or a family unit.
  • Trusts are very flexible for tax purposes.
  • A discretionary trust provides flexibility in the distribution of income and capital gains among beneficiaries, depending on their individual circumstances.
  • Beneficiaries of a trust are generally not liable for the trust debts, unlike sole traders or partnerships.
  • Beneficiaries of a trust pay tax on income they receive from a trust at their own marginal rates.
  • Trusts can be used to assist in Estate Planning.

Disadvantages of a Discretionary Trust

  • A trust is a complex legal structure, which must be set up carefully.
  • If the Trust Deed is not correctly set up, the entire structure can be declared null and void. Don’t rely on Trust Deeds not written by a local Adelaide lawyer who you can meet and talk to.
  • Be careful which firm you trust to set up this type of entity; ask them which lawyer they are using and why they have chosen them. Is it a lawyer who specialises in tax matters, or an opportunist flogging cheap deeds?
  • Operation of the business is limited to the conditions outlined in the trust deed; if this is incorrectly written, the business may be found in breach of trust.
  • As with companies, there are extensive regulations that trusts must comply with.
  • Losses derived in a trust are not distributable and cannot be offset by beneficiaries against other income they may have.
Let Bartley Partners help you explore your options and the best way to set up a discretionary trust. Give us a call on (08) 8338 1033 or fill in the form.

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