Trusts

Should I have a discretionary or unit trust involved in my business structure?

In a discretionary trust, the trustee has the discretion to distribute such income to the beneficiaries as the trustee sees fit. The trustee usually has a close relationship with, in fact may be, the primary beneficiaries of the trust. Therefore, the trustee will naturally tend to distribute the income of the trust in a tax effective manner in accordance with the wishes of the primary beneficiaries.

In a unit trust, the income of the trust is distributed according to the units owned, in much the same way as shares in a company. Such trusts are therefore often called fixed trusts.

A trust can co-exist with any other business structure. Company, partnership and sole trader structures often operate businesses incorporating a discretionary trust for tax, asset protection and succession reasons.

With respect to tax, discretionary trusts have the capacity to distribute in a tax effective manner income unrelated to personal exertion.

A business asset can be held in a trust for the same reason it is often held in a company, namely to separate the asset from the trading risk of the business using that asset.

In terms of succession, trusts are very useful in passing the control of assets between members of a family group. As the assets are owned by the trust, not the trustee, there are no transfer costs upon a change of the trustee of the trust.

Trusts are not particularly good vehicles, however, for transferring assets outside of a family group, as the beneficiaries of the trust will generally not include the members of the family of the purchasers of the assets.

Shareholders and partners may hold their interests in a company or partnership as trustees of a trust.

Working on a discretionary trust

What are the rights and obligations of the trustee of a discretionary trust?

The trustee makes all of the decisions with respect to the operation of the trust. Those decisions are generally controlled by the trust deed establishing the trust and the general law.

A trustee is legally liable to all those with whom it deals. Trustees have a range of duties called fiduciary duties, as well as statutory duties under the Trustee Act and elsewhere. At the core of these duties is the requirement that the trustee acts prudently and in the best interests of the beneficiaries of the trust at all times. The trustee must keep proper records and accounts and ensure that the trust complies with all of its legal obligations, such as with respect to tax.

However, a trustee will normally have an indemnity from the trust fund, except, perhaps, to the extent that the trustee is negligent or fraudulent. In other words, if the trustee commits itself to a contract, it is entitled to meet its obligations from the trust fund. If it is sued pursuant to that contract, any damages payable as a consequence of such an action can, possibly subject to negligence and fraud, come from the trust fund.

Two trustees meeting

Our Business and Commercial Lawyers

Michael Perkins Principal Lawyer

Michael Perkins

Lawyer, author, educator

Michael Perkins, Co-Founder and Principal Lawyer Dip Law SAB, TEP, MICW has over 30 years’ experience of in resolving complexities for clients managing their family and business interests. While many professionals manage and deliver transactions for clients, Michael provides additional support with resolving broader complexity and conflict in the lives of his clients, where possible without resorting to litigation or other dispute resolution processes.

He helps clients deal with the practical, strategic and operational needs of their businesses, conservation of their assets, activating community and philanthropic interests and planning for succession to their estate over time.

Michael applies a multidisciplinary approach in dealing with the challenges of achieving growth, asset protection, estate governance and succession. Methodologies finessed with experience are applied, paving a way forward for globalising businesses as well as families making plans to manage their wealth for the benefit of subsequent generations.

Jeremy Duffy Autonomy First

Jeremy Duffy

Principal Lawyer

Jeremy Duffy is a contracted Principal Solicitor based in South Australia. Jeremy has over 38 years of experience including as a partner in two Adelaide law firms. His background includes numerous litigation matters in both State and Federal jurisdictions and non-litigious advisory and transactional work in trusts, estate planning, property law and commercial transactions. Jeremy’s clients over the years have included corporates, banks, property developers and managers, financial advisors, representative bodies and private clients. Leveraging his extensive and varied skill set, he adeptly handles a broad spectrum of legal matters for a diverse clientele. Jeremy has a strong interest in developing technology to help deliver legal services more efficiently.

Amber Geake Autonomy First Lawyes

Amber Geake

Associate Lawyer

Amber Geake, Associate Lawyer at Autonomy First Lawyers, has been working in the legal sector since 2016 and was admitted to the Supreme Court of New South Wales in 2020. A passionate advocate, Amber’s focus is on all matters dealing with estates, including succession planning, estate administration and estate litigation. She has substantial experience in contested estate litigation (family provision, contested probate, testamentary capacity and validity, protected persons and general equity matters) in the Supreme Court of New South Wales. Her background also includes assisting clients within the Guardianship Division of the NSW Civil and Administrative Tribunal. Amber is currently undertaking her Master of Applied Law (Wills and Estates) at the College of Law.

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