Business Entities – Trusts

Whilst trusts are a recognised legal entity through which a business may be conducted, trusts do not exist in all legal jurisdictions. Trusts are a very flexible method of holding assets and distributing income and capital gains, whether for business, investment, asset protection or tax-reduction purposes. A business may be carried on by means of a trust where a trustee (often a company), holds assets of the business as trustee and carries on trading activities in that capacity.

Practice area overview

A trust is a legal relationship which arises whenever a person (trustee) holds property for the benefit of one or more other persons (beneficiaries) or for some object permitted by law (such as a charitable object). The trustee owes ‘fiduciary obligations’ to the beneficiaries which may enforced by the beneficiaries.

Three relatively common forms of trust exist in Australia:

• Unit trusts
• Discretionary trusts
• Hybrid trusts

 

What we do

We can help you by:

• Providing advice as to the features and benefits of trusts as opposed to other business entities and structures.
• Establishing trusts to meet your requirements.
• Help you with procedures and documents required for management of your trust.
• Advising you on and implement subsequent amendments to your trust deed.
• Advising you about the rights and obligations of trustees.
• Advising you about the rights and obligations of beneficiaries.

Unit trusts: The most common business trust is a unit trust under which the beneficial interests in the trust are divided into units. Units may be transferred similarly to shares in a company. Unit trusts may be public or private, listed on a stock exchange or unlisted.

Discretionary trusts: A discretionary trust does not have ownership interests in the form of units. No particular beneficiary of a discretionary trust has any entitlement to any specific part of the trust property unless and until nominated by the trustee. The rights of the beneficiaries are restricted to a right to be considered for nomination by the trustee and to compel proper administration of the trust. Discretionary trusts offer considerable flexibility in the distribution of taxable income and capital which can be distributed to beneficiaries chosen during or at the end of a financial year. With careful planning they can also offer considerable limited liability protection and increase the prospect of beneficiaries qualifying for social security and other pensioner income.

Hybrid trusts: A hybrid trust combines elements of both fixed and discretionary trusts. Not all hybrid trusts are the same. In broad terms a hybrid trust is a unit trust that contains discretionary trust provisions to enable trust income to be diverted to broad ranges of discretionary beneficiaries, with any capital and remaining income being allocated to the holders of units in the hybrid trust.