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What is a trust?

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Trusts are a useful investment structure, but are often not fully understood.

Briefly, the trust is formed by executing a deed which documents the establishment of the trust.

The trustee determines to whom and in what proportion the income/assets of the trust are distributed.

The appointor (usually the person establishing the trust) has the discretionary power under the trust deed to remove and replace the trustee.  The appointor has the power to nominate a successor on his or her death and failing any such appointment, the personal representative of the appointor will become the new appointor.

The specified beneficiary are usually the husband and wife or partner and so by definition the range of beneficiaries include any children and any related entities (any companies of the which the specified beneficiaries are directors or shareholders).

A trust can distribute income and capital gains in accordance with the trust deed, however, it cannot distribute losses.  Losses can be carried forward to be offset against future income.  A trust can also retain income, and if that income is taxable, then tax is payable at the top marginal rate plus the Medicare levy.

There are four main types of trusts:

  • Discretionary
  • Unit
  • Hybrid
  • Superannuation funds

Testamentary trusts which are formed upon the death of a person who has specified its creation in a will are discussed in Estate planning.

Note that Centrelink may include the income and assets of a trust when working out your social security payments if you are considered to be a controller of a trust.  Further information can be found at the Centrelink website.

Below is our video tutorial on who to appoint as the trustee of your trust:

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