One of the most common forms of financial investing in Australia is the trust fund. Even those of modest means can benefit from establishing a trust to safeguard their personal, family, and corporate assets, contrary to the widespread misconception that only the extremely wealthy have access to trust funds. However, establishing a trust fund can be a challenging task.
This is why it is so important to go slowly but deliberately. In this piece, we’ll look at the many trust structures that are legal in Australia, as well as the steps you’ll need to take to set one up.
How Do I Set Up A Trust In Australia?
The term “trust” is used generically to refer to a wide range of legal entities, each of which has its own unique set of rules and tax implications.
However, at its core, a trust is a private legal arrangement in which one’s assets, such as stocks, bonds, cash, real estate, antiques, and fine art, are held in an account managed by one or more individuals for the benefit of another individual or group of individuals.
Those who make the initial contributions to the trust are called “settlers.” Trustee refers to the person or organization responsible for overseeing a trust and distributing its assets. The last term for those who are destined to benefit from trusts is “beneficiary.”
Creating A Trust
Creating a family trust can be done quickly and easily with the help of a do-it-yourself online service for as little as $150. To top it all off, there’s the stamp duty to consider, which is a fee levied by the state.
The following are the necessary actions for settlors to do while creating trusts:
Step 1: Establishing the Trust Assets
Don’t forget to include the current worth of all assets that will be transferred into the trust.
Step 2: The Trustee Selection Process (s)
You can name a friend, family member, or trusted financial institution to act as trustee. Choose carefully because this individual or organization will have broad legal authority and control over the trust’s assets.
Step 3: Identify Recipients
Make a register of eligible people or organizations to receive aid. Give a breakdown of the assets in terms of the percentages going to each beneficiary.
Step 4: Draft Trust Deed
Your trust’s regulations and the trustee’s authority will be laid forth in a trust deed. It lays out the goals of the fund, the assets that went into the trust, to begin with, who the beneficiaries are, how they will be compensated (in a lump sum or by periodic payments), how the trust can be terminated, and how the trust’s bank account will be managed.
Trust deeds must have all trustees’ signatures and dates, be executed by the laws of the relevant state or territory and be reviewed and modified as necessary. Professionals with legal and financial expertise in trusts should draft the deed.
Step 5: Stamping
Stamp duty is a state or territory tax that may be due on the trust deed. The taxing authorities in your state or territory, or your attorney or certified public accountant, can help you get your documents stamped.
Step 6: Form A Legal Entity
Trusts in Australia require the same identification numbers and names as any other type of legal entity operating in the country. In some jurisdictions, trusts must be registered as corporations regardless of their complexity.
Step 7: Open An Account
If a trust is created, the trustee is responsible for opening a trust bank account. Before establishing an account, the bank may request identification information from the trustee(s) and any other interested parties.
Step 8: Start Trust Operations
When the trust’s bank account is set up, the trust is officially active and can begin accepting assets and making investments according to the trust deed’s conditions.
Why Establish A Trust?
The primary reason for establishing a trust is to insulate a person’s wealth from their estate. A settlor’s assets are protected from creditors and potential litigation plaintiffs once they have been assigned to a trust.
Other scenarios in which trust might be useful are:
- Holding legal sway over a person’s financial resources when they are either too young or too ill to make those decisions for themselves.
- Preventing squanderers from throwing away their money.
- Pension and retirement fund administration during the working life of an individual.
How Much Does It Cost To Establish A Trust?
Whether you choose to set up your trust on your own or have a professional do it for you, costs may vary. In most cases, the cost to establish a trust will be $1,000 or more.
A lawyer’s services to establish a trust will likely cost you on an hourly basis. Rates per hour begin at $150 and reach as high as $450 or more. There will be fees associated with the first consultation, drafting and reviewing the agreement, and obtaining your signature.
Although it is possible to establish trust through an online business, it is crucial to remember that the cheapest option isn’t always the best. If you want to make sure your trust is working for you as intended, you should talk to an experienced attorney.
Common Trust Structures In Australia
In Australia, you can set up any of the following trusts:
Discretionary Or Family Trusts
If your family owns a business or other source of income, you may want to consider forming a family trust, sometimes called a discretionary trust, one of the most frequent small business forms in Australia. These trusts’ trustees get to decide who gets money and how often. The fact that a family trust is recognized in all Australian jurisdictions makes it easier to set up and run.
Unit Or Fixed Trust
Unlike a family trust, the trustee of a unit trust (sometimes called a fixed trust) does not have any say in how the trust’s assets are distributed among its beneficiaries. Units of ownership in a trust are set up in a way that is similar to how stock shares are set up.
An annual payment is made to each beneficiary (“unit holder”) depending on the number of units owned as of the end of the year. Unit trusts work in a way that is similar to how a corporation does, which makes them a good choice when more than one family is involved.
Public unit trusts are another variation of the fixed unit trust. Units in a trust of this type are made available to the general public, traded on a stock exchange, or held by 50 or more people.
To put it another way, a hybrid trust combines the best parts of unit trusts and discretionary trusts. As with discretionary trusts, the trustee has the authority to divide the trust’s income and principal among the beneficiaries. But, like unit trusts, the income and capital are shared fairly among the beneficiaries based on how many units they own.
Because of the favourable treatment that hybrid trusts receive for both income and capital gains tax purposes, they are frequently chosen as the preferred form when substantial investment assets are at stake.
Special Disability Trusts
The special disability trust, which was established in September 2006, enables close relatives and caregivers to establish trusts for the benefit of a handicapped loved one. Before the trust can be set up, the law that governs it says that the beneficiary must be found to be severely disabled.
After that, relatives can give money on their own to help pay for the beneficiary’s care now and in the future. The trust’s beneficiary is free to spend the money any way he or she sees fit, even on things like food and lodging.
In Australia, it is common to set up a trust for financial and estate planning, as well as for making business investments. A trust is established by a legal document called a trust deed, which specifies the trust’s goals, who will receive benefits and how, who will serve as trustees, who the beneficiaries are today, and who can join the group in the future.
Creating trust is as simple as 1, 2, 3. To learn what trust set up cost, click here.