Family or Discretionary Trust
Some people confuse Discretionary Trust with Unit Trust. Discretionary Trust is ideally a legal arrangement whereby a person or trustee (usually an individual or company) is entrusted with assets on trust to help benefit one or more beneficiaries upon the demise of the settlor who creates the trust. A family trust entails beneficiaries related to one another, but can extend to include family companies, family charities and family trusts. Also known as a discretionary trust, this form of legal structure empowers the trustee to determine which beneficiary receives what amount of income or assets from the trust, unlike a fixed trust common with a Unit Trust, whereby a particular beneficiary is only entitled to a fixed income or capital. Just as the name suggests, discretionary trust means that income and capital gains distribution is based on the trustee’s discretion to family members as they deem fit. This is especially applicable where one or more family members enjoy lower marginal tax rates, as this could greatly lower tax obligations and preserve the assets of the trust. They may also exclude one or more capital and income payments to the beneficiaries they feel are troubled.
These are common in many commercial arrangements, such as between partners in business operations and in property investment. These specific unit trusts exist to guide the distribution of income between often unrelated parties. They often involve payment of an initial sum submitted to one or more initial unit holders. The sum is held in a trust and a trustee assigned to manage it in line with the deed so that it can benefit the unit holders. The profitable ownership of these trust assets is subdivided into smaller manageable units so that members can buy and sell them in a manner similar to stocks of blue chip companies. Unit trusts and their holders can be taxed, just like corporations and shareholders, respectively.Related Tag: Register Company Australia