Key steps to set up a Discretionary Family Trust

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What’s in a name?

Trust, Family Trust, Discretionary Family Trust – it’s enough to do your head in. What does it all mean?

A trust is a legal relationship that is managed by a trustee who is entrusted to perform that role – hence the name. The trustee holds the assets of the trust on behalf of the beneficiaries. A trustee may be one or more individuals, or a company. Beneficiaries are those people who are entitled to receive distributions from the trust, that is, they can benefit from the trust.

Where the trust deed allows the trustee to use discretion with respect to which beneficiaries receive distributions, how much, and when, they are referred to as Discretionary Trusts. Particularly in Australia, such trusts are very often used to efficiently and tax effectively manage the financial affairs of a family, thus causing them to be colloquially known as Family Trusts, or Discretionary Family Trusts, although the addition of the word Family in the title is merely indicating the manner in which the trust is being used.

Further detail on why and how such trusts are so used is beyond the scope of this article so let us dive straight into the steps involved in setting up such an entity.

One step at a time

Step 1 – Appoint the Trustee(s)

This first step may well be the most important of all. The trustee may be one or more individuals, for example, a very close friend with excellent credentials and acumen, a lawyer, or an accountant. Invariably however, the trustee will be a proprietary limited company established for the sole purpose of administering the trust, with such people mentioned as directors of that company. This arrangement provides a level of protection against personal liability, since the trustee is not only charged with administering the trust but is also liable for its debts, and the arrangement is often referred to as having a corporate trustee.

Step 2 – Create and settle the trust deed

The trust deed is essentially the manual on how the trust should be run and will both name the trustee(s) and list the beneficiaries. While trust deeds contain a lot of common ground, it is imperative that the deed is formulated to satisfy the specific individual needs of the trust and making sound legal advice a very wise move.

The trust deed needs to be settled, or activated, and this duty is performed by a settlor. The settlor may be a close friend, lawyer or accountant, and for tax reasons should not be a beneficiary. Think of the settlor as the person who triggers the starting gate to open, and with that duty performed, takes no further part in the race.

With the trust deed signed by the settlor, the trustee then accepts the role and signs the deed.

Step 3 – Pay stamp duty

Revenue NSW collects stamp duty – the fee paid to have the deed stamped, and therefore officially ratified. Section 58 of the Duties Act currently specifies a figure of $500 to be paid within 3 months.

Step 4 – ABN and TFN

It is now time to apply for an Australian Business Number (ABN) and a Tax File Number (TFN).

Step 5 – Open bank account and transfer assets to the trust

The final step is to open a bank account in the name of the trustee, and with that done, assets such as shares, cash and property can be transferred to the Trust.

Do you think a Trust might be beneficial? – get in touch with us via the ‘enquire now’ button below. We look forward to assisting you with any of your enquiries. 

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