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A trust is a legal structure whereby a person or company (the trustee) manages assets (trust property) for the benefit of another person or persons (the beneficiaries). Trusts are an attractive structure because they can offer asset protection and flexible tax management options. There are various trust structures available for different purposes, including for protecting and distributing family assets or for the purposes of business investment and growth. If you are thinking of establishing a trust, you must understand and familiarise yourself with the trust deed as this document outlines how your trust will operate.
What is a Trust Deed?
A trust deed is a legal document that sets out the conditions, terms and rules for creating and managing your trust. The trust deed will cover the:
- term and objectives of the trust;
- the powers and responsibilities of the trustee
- specify the types of assets the trust may purchase and own; and
- name the beneficiaries and their entitlements to receive income and capital from trust property.
All trustees must sign and date the trust deed.
Other Key Terms in a Trust Deed
An appointer has the sole ability to appoint and remove trustees under the trust deed. In some trust deeds, the appointer is referred to as the ‘protector’ or ‘guardian’ of the trust. The appointer does not have day-to-day control of the trust as this rests with the trustee. However, they have ultimate control over the trust by having the ability to appoint, replace and remove trustees. This includes if the trustee resigns or passes away.
For this reason, it is important to pick a suitable appointer for your trust. It is possible to have more than one appointer.
The beneficiary is the party who receives the benefit of the trust. There can be more than one beneficiary, and depending on the trust, the beneficiary can be an individual, company, or another trust.
There are generally two types of beneficiaries to a trust – primary beneficiaries and general beneficiaries.
It is common in the trust deeds of discretionary trusts to provide for broad classes of beneficiaries so that the trustee has the flexibility to determine who should receive income in a given year. For example, this may allow them to maximise the tax benefits of the trust.
The settlor is responsible for placing the initial trust property into the trust (known as a settlement). This settlement costs a nominal sum. The settlor will typically have no involvement in the trust after this.
It is recommended that the settlor is a third party unrelated to the trust. Consider engaging a professional advisor, such as an accountant or lawyer, as the settlor. Furthermore, for tax reasons, the settlor should not be a trustee or beneficiary of your trust.
A trust cannot exist indefinitely. In most Australian states and territories, the maximum lifespan of a trust is 80 years. A trust can certainly be established for a shorter term, or even begin or end on a specific trigger event. Whichever you choose, you must specify this in the trust deed.
For Example: Grandparents (the trustees) establish a trust for their grandchildren (the beneficiaries) and want to provide them with an income stream (trust assets) that they can access on their respective eighteenth birthdays (trigger event).Continue reading this article below the form
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A trustee is a person or company that holds and administers property for the benefit of the beneficiaries.
The trustee must deal with the trust property in accordance with the purposes of the trust (as outlined in the trust deed). They must also comply with obligations under relevant state or territory legislation. The trustee must also be mindful of their powers and responsibilities under the trust deed, and ensure that the trust deed allows them to take certain actions on behalf of the trust before they take such actions (for example, purchasing certain assets and executing certain documents). The trustee is subject to various strict duties, such as the duty to act honestly, reasonably and in good faith. A trustee may be liable for a breach of these duties.
Vesting Date of a Trust Deed
The vesting date is the date that the trust will end. In most cases, you can extend this as long as:
- you do so prior to the vesting date; and
- the trust term does not surpass 80 years.
However, the vesting date cannot be changed after the date has passed.
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In summary, trusts are a legal structure allowing a trustee to manage assets on behalf of a beneficiary. The trust deed and legislation govern trust management and distribution. If you are interested in establishing a trust, you should engage a professional to draft your trust deed. This is to ensure that the trust deed is drafted accurately, reviewed and updated as necessary, and complies with relevant state or territory laws.
If you need help with trusts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A trust deed is a document outlining the terms and objectives of the trust, the powers and responsibilities of the trustee, the types of assets the trustee may purchase and the beneficiaries of the trust.
General beneficiaries are a broad class of people rather than specifically named individuals. Trusts may include general beneficiaries to allow the trustee greater flexibility and discretion in determining who will receive trust income in a given year.
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