The Role of Trusts

Trust’s are often highlighted in the media as being under attack by the Australian Tax Office, and more often than not in the media for the wrong reason,  creating unnecessary uncertainty in the reader.

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What is a Trust?

A trust is simply a relationship that forms a legal agreement  whereby either a natural person or a company (“the trustee”) agrees to hold a single asset or multiple assets for the benefit of another person or company or group of persons or companies (“the beneficiaries”).

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Types of Trusts

The type of trust selected will depend on a number of variables, circumstances and objectives.

The three most common types of trusts are:

Discretionary

A discretionary trust (commonly referred to as a family trust) is the most common trust used by small to medium size business owners and passive investors in Australia…

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Unit

A unit trust is like a company where the trust’s property (business or investments) are divided into a number of shares called units. The number of units that a beneficiary…

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Hybrid

A hybrid trust takes the best features of a discretionary trust and the best features of a unit trust and puts them into one. Depending upon the objective of the particular…

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The Right of Indemnity (“ROI”)

So far I have spoken of the liabilities of the trust. But the trust in not an entity recognized by the law, and the c liabilities referred to in the balance sheet are really liabilities of the trustee. The rule is that a trustee is personally responsible for liabilities including debts properly incurred by him in the course of administering trust property: see Octavo Investments Pty. Ltd. v. Knight (1979) 144 C.L.R. 360, 367.

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