Q & A Discretionary Trusts

Transcription

1 Q & A Discretionary Trusts The questions and answers below are for information purposes only and are not advice. You should arrange your own legal, accounting, financial and other advice. What is a Discretionary Trust? A Discretionary Trust is generally a trust under which the Trustee has a wide discretion in relation to dealings with the trust property and as to whether and to which beneficiaries to distribute the income and capital of the trust. Until the trustee exercises it s discretion, the beneficiaries generally have no interest in the trust property. The most common type of discretionary trust is the family trust which is a discretionary trust established for the benefit of members of a family (for tax reasons a family trust means a trust that has made a family trust election). When is a discretionary trust created? A Discretionary Trust is created when the Settlor gives the trustee money or property to be held on trust for the benefit of the beneficiaries. The initial sum is the original trust fund. Who can be a Beneficiary? Our Discretionary Trust Deed is drafted to include a wide range of beneficiaries by reference to their relationship with the Primary Beneficiary. The Primary Beneficiary is usually the person setting up the trust for the benefit of their family, eg. the husband and wife of the family. Briefly, Beneficiaries include: (a) the Primary Beneficiary; (b) each spouse of the Primary Beneficiary; (c) each child, grandchild or great-grandchild of the Primary Beneficiary or of a spouse of the Primary Beneficiary; (d) each parent, brother, sister, nephew and niece of the Primary Beneficiary or of a spouse of the Primary Beneficiary; (e) each spouse of each of the persons described in paragraphs (c) and (d); (f) each trust in which any of the persons described in paragraphs (a) to (e) inclusive is a beneficiary; (g) each corporation of which any of the Beneficiaries is a shareholder or a director, or in which at least one share is beneficially owned by any of the beneficiaries; (h) each trust in which any of the beneficiaries is a beneficiary; and (i) any Charity; Beneficiaries may include people or entities even if that person was not born or entity not in existence at the time the Trust is created. Beneficiaries do not include: the Settlor and any child of the Settlor for so long as that child is under the age of 18 years; or any person or corporation which is or becomes insolvent for so long as that person or corporation remains insolvent.

2 You may want to consider excluding certain persons from the definition of Beneficiaries. For example, in some circumstances deeming rules in the Social Security legislation may make it necessary to exclude certain persons who are currently or intend in the future to receive Centrelink benefits. Please advise us in the other requirements section of our order form if there are any persons or entities you want excluded from the general definition of Beneficiary. What is a Trustee? The Trustee is the legal owner of all trust property (the potential beneficiaries are the beneficial owners). The Trustee administers the trust fund and determines how much income and capital is to be distributed and when it is to be distributed. The Trustee can be a company, one or more individuals, or a combination of them. What is an Appointor? The Appointor effectively controls the Trust as the Appointor has the power to appoint and remove trustees. The Appointor may be an existing trustee, a beneficiary or any other third party. What is a Settlor? The Settlor is the person who initially gifts a sum of money or property to the trustee to establish the trust. The Settlor must be over 18 years of age and must be independent of the trustee and the beneficiaries. The Settlor can not be the Trustee, the Appointor or a potential beneficiary. Other than making the original gift of money or property, the Settlor has no other legal obligations. The Settlor is not responsible for the Trustee s actions. What is a default beneficiary? A default beneficiary or beneficiaries can be appointed so that if the trustee fails to make a determination to distribute the income of the Trust in any year then the default beneficiaries will be entitled to the income. Whether or not it is appropriate for there to be default beneficiaries and who they should be will depend on the circumstances of the beneficiaries from time to time. A nomination can be changed from time to time. If no default beneficiaries are nominated, some or all of the undistributed income will be treated as having been accumulated which may have adverse income tax consequences. What are the advantages of having a company as trustee of a Discretionary Trust? The advantages of a corporate trustee include: Removal of most of the risk of personal liability which individual trustees are exposed to (although the directors of a corporate trustee may be personally liable in certain circumstances); It is easier to effect a change in control of the trust (eg. transfer shares and change directors rather than remove and appoint an individual trustee). No need to incur the cost of transferring assets to the new trustees or changing names on investments and bank accounts when there is a change in trustees.

3 Control of the fund is more certain in circumstances of death or incapacity of key persons. What can I call the Trust? You can choose any suitable name for the discretionary trust but avoid choosing names that suggest an inappropriate connection or affiliation with or endorsement by persons, organizations or governments with which you are not involved. What is the initial sum? The initial sum is the sum of money or property that the settlor gifts to the trustee to establish the trust. The trust will be properly constituted if an amount of money or property is settled on the trust. The usual amount for the initial sum is $10 but there are no limits on the amount (any lesser amount may however be considered inadequate). The initial sum is a gift from the settlor and accordingly the settlor is not reimbursed for this amount. The initial sum should be kept with the trust deed. The rationale for keeping the initial sum separate from the other trust property is that if at any stage there ceases to be trust property then of course the trust ceases to exist. This method will prevent that from happening accidentally. Does the trust deed have to be stamped? A trust deed is usually subject to stamp duty. The amount of stamp duty payable varies between each State and Territory. If your trust is to be governed by the law of South Australia or the Northern Territory, we give you the option on your order form of either arranging the stamping yourself or we can arrange stamping for you (at an additional cost). If your trust is to be governed by the law of any other State or Territory, you will need to contact the Stamp Duty Office in your State or Territory for information regarding duty payable on trust deeds. What are some of the features of our Discretionary Trust package? The following are some of the features of our Discretionary Trust package. However the trust deed should be read in full to understand the relationship between the trustee and beneficiaries and how the trust works. All documents to establish the trust Our documents are easy to read and understand. You decide how you want the documents delivered to you and therefore how much you pay. We give you a choice of us arranging stamping of the deed (in SA or NT), or you can arrange it. We prepare your documents and call you if we have any questions. We can include your logo. Fast delivery by or courier. Our Discretionary Trust Deed includes: o wide range of potential beneficiaries; o ability to appoint default beneficiaries in respect of income; o individual or corporate trustee (and ability to change between the two);

4 o when the trust is wound up the trustee must distribute the trust fund to the beneficiaries then living or existing; if no beneficiary is living or existing then to the persons who would be entitled to the estate of the Primary Beneficiary, and if there are no persons entitled to the estate of the Primary Beneficiary then for such charitable purposes as the trustee determines. This ensures that there is no resulting trust to the Settlor; o broad trustee powers (although please note that the banks and other financial institutions are notorious for requiring very specific powers to be inserted in to trust deeds and they change their minds regularly and may insist on this despite the trustee having very broad powers under the deed). What are the delivery options? DIY Print We will deliver all documents to you via . DIY Print & CD - We will deliver all documents to you via & a copy on CD. Hard copy We will print, bind and deliver all documents to you in a binder via courier. How much does it cost? DIY Print $231* DIY Print & CD $253* Hard copy $275* *Prices are GST inclusive. Prices do not include any stamp duty that may be payable. Stamping* SA $22 NT $79 *SA - As from 1 July 2006 deeds are exempt from stamp duty in South Australia. However, a deed establishing a Discretionary Trust still needs to be stamped as Exempt. We will arrange stamping in SA and NT only. Prices are GST inclusive. SA is exempt from stamp duty and NT includes stamp duty of $35 (GST free). What do I get if I order a Discretionary Trust? You will receive: Trust deed Nomination form for default beneficiaries Trustee's resolution (individual trustees) or minutes of meeting of the trustee company or sole director's resolution (corporate trustee) Blank nomination and revocation forms for the default beneficiaries If you choose Hard Copy delivery a binder How do I order a Discretionary Trust? It s easy! Simply click on order online on the Discretionary Trust page and you can complete your order in minutes. Or, if you prefer, you can download an order form from the Discretionary Trust page and fax it to us.

5 Once you have placed your order, we will prepare your documents. If you have requested delivery by , we will the documents to you, or if you have selected hard copy delivery, we will courier the documents to you. How does the Trust register for the New Tax System? You may apply to register for the New Tax System online at That application allows the Trust to apply for a Tax File Number and an Australian Business Number, and to register for GST purposes (if appropriate). Questions? If you have any questions about how to order a Discretionary Trust, call us on or e- mail us at info@documentshop.com.au. If you have questions about legal issues, please call us on or info@documentshop.com.au and we will arrange for you to speak to the right person at Kirrily Mitchell & Associates. Disclaimer You should not rely solely on the information in these questions and answers because they are of a general nature only and the tax and commercial laws apply differently to different people and circumstances. Also as the law changes constantly, there may have been changes to the law since these questions and answers were written. None of the information is intended to be legal, accounting, financial or other advice. You must not act on the information. You must seek your own legal, accounting, financial and other advice. Document Shop Pty Ltd and it s directors, officers, employees, agents, consultants and the author of these questions and answers expressly disclaim any and all liability to any person or entity for the consequence of anything done or omitted to be done by any such person or entity relying on a part or all of the contents of these questions and answers. Copyright All copyright in these questions and answers is owned by Document Shop Pty Ltd and, except as permitted by the Copyright Act (1968) Cth, the information may not be reproduced or published in any form or by any means without Document Shop Pty Ltd s prior written consent.