A discretionary trust is a structure established to hold property for the benefit of other persons commonly known as beneficiaries who have no fixed entitlement or interest in the trust funds. A discretionary trust is governed by the terms of the trust deed and the trustee is the legal owner of the trust property.
Discretionary trusts generally have the power to determine which beneficiary will receive payments from the trust. In addition, the trustee can select the amount of trust property that the beneficiary receives.
Discretionary trusts still serve a useful function
> Asset protection – as no one individual is the owner of the assets held in a discretionary trust then property held by a trustee cannot be taken by a creditor
> Estate Planning – to hold assets for future generations of the same family
> Tax Planning – under current laws beneficiaries pay income tax at their marginal rates and since the trustee has the power to choose which beneficiary should be paid they may select the beneficiary with the lowest marginal rate
A discretionary trust is required to a tax file number (TFN) and where relevant an Australian Business Number (ABN) or GST registration. The trust deed specifies the powers of the trustee which are generally sufficient to manage the trust in an orderly manner.
As the legislation that governs discretionary trusts is often subject to parliamentary review a regular review of trust deeds is warranted to ensure that the structure is adapted to changes that effect business and family circumstances.
Please note: Prepared by Leigh Barker Tangible Assets, MWC Group, Accountant, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.