What is a Discretionary Trust?
If you are acquiring a business or investing your hard earned capital in an asset, it is important that you give some thought to the legal entity that is to own the asset.
It’s very common for business owners or investors to acquire assets through a vehicle known as a discretionary trust, which is sometimes called a family trust or an investment trust.
Both companies and individuals can hold assets as trustees under a discretionary trust, which is generally created upon the execution of a trust deed.
The trustee owns and operates the business or asset, but the benefit and profit that flows from doing so goes to people identified as the beneficiaries in the trust deed. These are often various members of the same family and their related companies or other entities.
The word “discretionary” is used because it is the trustee who decides, from year to year, which of the listed beneficiaries should receive the profits and other benefits.
There’s no set proportion of the benefits that need to flow to any one beneficiary and the proportion that any one beneficiary receives can vary from year to year, at the discretion of the trustee.
If the trust income is distributed during the year it is earned, then the trust doesn’t pay tax on that income. Tax is only paid by the beneficiaries who receive distributions.
So one of the benefits of a discretionary trust is that the profits flowing from a business or asset can be shared around a family group, in such a way that less tax is paid, overall, than might otherwise be the case.
Another benefit is that, because the beneficiaries don’t own the trust assets, if a particular beneficiary is in financial trouble, the trust assets can’t be claimed by the creditors of that beneficiary.
If you require any further information please contact us on 07 5443 9988 or [email protected].
Argon Law is a Sunshine Coast law firm based in Maroochydore. We are commercial lawyers, body corporate lawyers and property lawyers and are eager to assist in any way we can.
Always ensure you seek professional advice for your specific circumstances. The above is not advice and is intended to be general in nature only