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A trust is a flexible, legal structure that allows one or more people (or companies) to manage property for somebody else’s benefit. It involves splitting the legal and equitable rights inherent in owning property and giving it to other people. Ultimately, trusts are a great way to manage your tax and protect your assets. To help you understand the parties involved in a trust, this article provides a summary of each role. 

Who Is a Settlor?

A settlor is an unrelated party to the beneficiaries of the trust. This may include a close friend, family member or a professional advisor like an accountant/lawyer. For tax reasons, the settlor should not be a unitholder of the trust or a beneficiary. The settlor’s role is to place the property into the trust, which is known as a settlement or gift. Usually, the settlement is for a nominal or small sum, such as $10. In general, a settlor has no further involvement in the trust after the initial settlement or gift.

Who Is a Trustee? 

A trustee is the legal owner (but not the beneficial owner) of the trust’s assets and has an array of strict duties in distributing and managing those assets. They can either be an individual or corporate entity and are responsible for administering the trust in accordance with the trust deed or trust agreement. In Australia, a trustee must legally comply with the terms of the trust deed. Likewise, they must comply with any relevant legislation in the State or Territory where the trust is established. 

Generally, it is ideal for a company to act as a trustee of a discretionary trust, which is known as a corporate trustee. This is because it assists in minimising the risk of personal liability which is usually greater for an individual trustee than it is for directors of a corporate trustee. It is also easier to effect changes of control and in situations of succession. 

Notably, trustees are liable to significant risks and must act in the trust’s best interests at all times. If you decide to use an individual trustee, it is common to use a family member, close friend or a professional.

Who Is an Appointer?

An appointer can appoint and remove trustees under the trust deed. An appointer can also determine the trustee’s remuneration. While an appointer does not have the day-to-day control of the trust, they generally have the ultimate control by, for example, appointing and removing trustees, or providing a new one in the event of the trustee’s death. 

For these reasons, you should take care in selecting the appointer. Likewise, where possible, it is ideal to have two or more joint appointers.

Who Are the Beneficiaries?

Primary Beneficiaries

Primary beneficiaries are the individuals that the trust deed explicitly identifies and lists. Discretionary family trust deeds largely have two named beneficiaries, often de facto partners, or husband and wife. All other beneficiaries (general beneficiaries) are defined by their relationship to the primary beneficiaries. 

General Beneficiaries

Under the trust deed, general beneficiaries are those within the class of persons related to the primary beneficiaries. For example, general beneficiaries can be children and grandchildren as well as any parent, grandparent or more distant ancestors.

Income Beneficiaries

Some trust deeds separate beneficial entitlement between income and capital. For example, some beneficiaries may have entitlements to the income of a trust and no entitlement to trust capital or vice versa. Likewise, the trust’s income will typically stem from interest earned on trust money in a term deposit or rent earned from a trust-owned property.

Capital Beneficiaries

Capital beneficiaries have entitlements to trust capital, but not to trust income. 

Default Beneficiaries

Default beneficiaries are those who enjoy the benefit of either the income or capital of the trust. This is only to the extent that the trustee has not exercised its discretion to distribute the trust’s income or capital favouring any other beneficiary or beneficiaries in the relevant income year. 

Additionally, for tax purposes, using default beneficiaries in trust deeds help the trustee in avoiding being assessed on any undistributed trust income at the highest marginal tax rate.

Key Takeaways

A trust can be a great way to manage your tax and protect your assets. However, there are key parties to a trust, including the:

  • settlor;
  • trustee; 
  • appointer; and
  • beneficiaries. 

For more information on the most appropriate structure for your trust, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

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. It will usually list the objectives of the fund and identify the beneficiaries. Likewise, it will detail how much beneficiaries are to receive and the method of payment.

What is the difference between a corporate trustee and an individual trustee? 

A corporate trustee is a company that acts as trustee of a trust. The company is a registered company, but it is often incorporated with the sole purpose of acting as trustee. On the other hand, an individual trustee is simply a person who manages a trust. Legal title to the trust assets will sit with the person as trustee for the trust.

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