A discretionary trust is an asset ownership arrangement that some business owners and investors set up to assist with asset protection or tax planning. Discretionary trusts have the following benefits:
Asset Protection: If you are a director of a company, you have directors’ duties, and you could be held personally liable for breach of these duties, and for debts incurred by that company in certain circumstances (e.g. fraud and wilful negligence, and trading while insolvent) thus putting your personal assets (including any shares you own in your own name) at risk. Owning your shares through a trust rather than in your own name may offer some protection.
Tax Planning: Owning shares through a trust may be more tax efficient than owning the shares personally. This is relevant to income from payment of dividends, and to any capital gain on selling shares. The trustee has the discretion regarding the distribution of the trust income, including proceeds of a share sale amongst the beneficiaries.
If you are interested in discussing your business structure, or require assistance with setting up a discretionary or unit trust, LegalVision’s experienced Business Structuring Team can assist. We have successfully established hundreds of discretionary trusts for business owners across Australia. Our lawyers can advise on directors’ duties, draft trust deeds, assist with stamping trust deeds and establish a corporate trustee where required. We can also draft all related legal documents associated with establishing a trust, including consent forms and minutes of trustees.
Make an Enquiry
5 Things You Need to Know About Discretionary Trusts
1Many business people set up discretionary trusts to protect assets and increase their tax efficiency. A discretionary trust gives the trustee discretion over what income is paid to what beneficiary. A discretionary trust can be an effective structure for achieving both of these goals.
2Setting up a discretionary trust doesn’t need to be overly complicated. You will need to select a trustee, then you’ll need to have a trust deed drafted, the trust will need to be settled, the trustee(s) need to sign the deed, and then stamp duty must be paid (if applicable).
3Stamp duty is only payable in certain states. Your lawyer or accountant will be able to advise you on whether stamp duty is payable in your circumstances.
4Once you’ve set up your trust you will have ongoing taxation obligations. Make sure you work with a good accountant to ensure you’re keeping up to date with those obligations.
5Finally, make sure you only set up a discretionary trust if it makes sense for your particular circumstances. It may not make sense for you to set up a discretionary trust — seek advice before making any decisions.