A trust is an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries. It’s an arrangement which lets a person or company hold property or assets for the benefit of others. The person or company holding the asset or property is known as the trustee. The people, or even companies, for whose benefit it is held are known as the beneficiaries.
A trust relationship in most cases requires the following stakeholders:
The most common types of trusts can include:
These are most common form used by families. The beneficiaries of the trust have no defined entitlement to the income or the assets of the trust. Each year, the trustee decides which beneficiaries are entitled to receive the income and how much they should get
the beneficiaries have a defined entitlement under the trust, similar to owning a share in a company. The trustee doesn’t have any discretion as to how they distribute the trust’s capital and income.
Are a combination of both, a fixed and discretionary trust, compelling the trustee to provide a fixed amount but also allowing them some scope to make distributions.
Trusts can be set up by deed during a person’s lifetime, or by will to take effect after the person’s death. A superannuation fund is also considered a trust although they retain income and pay tax within the fund.
It is important to note that trusts are treated as a separate entity when it comes to paying tax. The trustee is responsible for managing the trust's tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities.
Beneficiaries (except some minors and non-residents) include their share of the trust's net income as income in their own tax returns. There are special rules for some types of trusts including family trusts, deceased estates and super funds.
Make sure you ask a trusted adviser if you aren't sure how to action the above information, because everyone's situation is different and it can be difficult to know which option works best for you.
Have a talk with our team at BLG Business Advisers to get your requirements set up in the right way for you.