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Discretionary Trusts

A ​​discretionary trust is a​n 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.

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5 things you need to know about Discretionary Trusts

  • Many 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.
  • Setting 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).
  • Stamp 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.
  • Once 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.
  • Finally, 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.

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