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Trusts

"When one thinks of trusts, one thinks of widows and orphans and the wistful savings of a vanished hand."

- William Arthur Fearnley-Whittingstall, Barrister-at-law

What is a Trust?

 

A Trust is an obligation placed upon a person or a company (the Trustee) to hold property or assets (including business assets) for others (the Beneficiaries). The duties and obligations of the Trustee are typically, but not always, described in a document known as a Trust Deed.

 

A Trust cannot exist for an indefinite length of time. The position under the General Law is known as the 'Rule Against Perpetuities', which means that the Trust cannot extend more than twenty-one years beyond the lifetime of a party who was alive when creating the Trust. Some jurisdictions have modified this through legislation, e.g. Victoria and Queensland, where a Trust is limited to a life of eighty years.

 

A Trust can be a tax-effective way of managing assets, and there are several common types of Trust: Discretionary, Pedigree and Unit Trusts:

 

Discretionary Trust

 

The defining characteristic of a Discretionary Trust is that the Trustee has the discretion to distribute income or capital to the Beneficiaries. Until the Trustee exercises that discretion, the Beneficiaries generally have no interest in the Trust property and so in reality, are 'potential Beneficiaries' only.

 

Discretionary Trusts are often used as the basis for a "Family Trust", although under tax rules and legislation a "Family Trust" is primarily made a "Family Trust Election".

 

Although not considered a separate legal entity, however, a Trust is required to have a tax file number, an Australian Business Number and is expected to file a Trust Return each year.

 

Pedigree Trust

 

A Pedigree Trust is a variation of a Discretionary Trust. The design is a means of keeping Trust property within a family. This is often defined by a direct connection to an individual.

 

In recent years, the primary purpose of Trusts gave protection to assets in the event of a marriage breakdown. However, the Family Court has wide-ranging powers that look beyond Trust structures when identifying assets that should have rightly considered to be 'marital assets' rather than Trust assets.

 

Nevertheless, Pedigree Trusts are useful for a 'Principal' setting up such a Trust to ensure that the Trust property will remain within their immediate family.

 

Unit Trusts

 

The defining characteristic of a unit trust is that the trust property is divided into shares called units. These units are similarly allocated to the Beneficiaries (known as Unitholders) as assigned stocks to shareholders in a company.

 

The Trustee holds the assets of the Trust for the unitholders. Unitholders will be entitled to a share of capital and income of available trust funds proportional to the number of units held by that Unitholder.

 

One differentiating characteristic between shareholders in a company and Unitholders in a Unit Trust is that shareholders have no interest in the actual company assets; Unitholders do have an interest in the property of a Unit Trust.

 

Some of the advantages in a Unit Trust are that the units:

(1) Describe the unit holder's interests in the assets and the income of the Unit Trust;

(2) Are easily transferable, and;

(3) Can be re-acquired by the Unit Trust's Trustee.

 

The Unit Trust also has the added advantage in that:

(1) There is less regulation than for an incorporated organisation;

(2) There can be tax advantages compared to a company structure;

(3) A Unit Trust is less complicated to wind up than a company;

(4) There are few problems with redeeming units from a unitholder, and;

(5) The Trust Deed can be customised to suit the needs of both the Principal/s and Unitholders.

 

Despite the attraction of the Unit Trust, there are also some disadvantages that must be considered:

(1) The units are themselves are regarded as an asset by a bankruptcy trustee and as such can be sold by that bankruptcy Trustee to raise funds to pay creditors;

(2) Tax-free distributions are more challenging to make from a Unit Trust than from a Discretionary Trust;

(3) As a beneficiary's interest in the assets of the Trust and right to receive income is dependent on their unit holdings, there is less flexibility in distributions and less reliance on discretion.    

Special Disability Trusts - Providing for a Special Needs Child After Your Death.

A special disability trust (SDT) is a legal arrangement designed to provide financial support and security for individuals with disabilities. It allows families and caregivers to set aside funds and assets for the benefit of a person with special needs, without jeopardizing their eligibility for government assistance programs such as NDIS, or Centrelink Supplemental Security Income.

The purpose of a special disability trust is to supplement the government benefits received by the person with a disability, rather than replacing them entirely. By creating a trust, families can ensure that their loved one with special needs continues to receive essential government benefits while also having additional financial resources to improve their quality of life.

To establish a special disability trust, a family member or a third-party trustee must create a legally binding document that outlines how the trust will be managed and disbursed. The trust document specifies how funds should be used and who will have decision-making authority over the assets.

One crucial aspect of a special disability trust is its "special needs" provision. This provision ensures that the funds held within the trust are not considered as a countable resource when determining the beneficiary's eligibility for government benefits. This protection allows the individual to retain their access to important programs and services that support their healthcare, housing, and other essential needs.

The trustee of a special disability trust has a fiduciary duty to manage the trust assets responsibly and in the best interest of the beneficiary. They are responsible for making distributions from the trust to provide for the beneficiary's supplemental needs, such as education, therapy, medical expenses, recreational activities, and personal care.

It is important to note that the rules and regulations governing special disability trusts may vary depending on the jurisdiction. Therefore, families considering the establishment of a special disability trust should consult with an experienced lawyer advisor who specializes in disability law to ensure compliance with local laws and regulations.

In Summary, a special disability trust provides families with a valuable tool to secure the financial future of individuals with disabilities. It allows them to enhance their loved one's quality of life while preserving eligibility for vital government benefits

For further information,
please contact us to discuss your needs.

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