Trusts

Discretionary Trusts

A Discretionary Trust is a type of trust that is created inter vivos where the trustee has the discretion to decide how the capital and income of the trust fund will be distributed amongst the beneficiaries of the trust.

A Discretionary Trust is colloquially known as a “Family Trust” as they are commonly used by families for the purposes of asset protection and asset succession. A Discretionary Trust is also used to stream income to beneficiaries to minimise the tax payable on such income.

Testamentary Discretionary Trusts

A Testamentary Discretionary Trust is a type of trust that is created through a Will after the Testator’s death. Instead of the beneficiary of the Will’s entitlements passing to the beneficiary directly, the Executor of the Will places the beneficiary’s entitlements in a Testamentary Discretionary Trust.

The beneficiary of the Will can appoint a trustee of the Testamentary Discretionary Trust and the trustee has the discretion to decide how the capital and income of the trust fund will be distributed amongst the beneficiaries of the trust.

A Testamentary Discretionary Trust offers the same benefits as a Discretionary Trust, that is, asset protection and income streaming. However, an additional benefit of a Testamentary Discretionary Trust is that minors are taxed at the same rate as adults, which allows the trustee to take advantage of the tax-free threshold.

Please refer to Wills Page for further information regarding Testamentary Discretionary Trusts.

Positions of Control

There are commonly three positions of control in Discretionary Trusts and Testamentary Discretionary Trusts: the trustee, the guardian and the appointor.

The trustee of the trust holds the legal title of the assets of the trust for the benefit of the beneficiaries. The trustee exercises the powers under the trust deed to administer the trust.

The guardian of the trust grants or withholds consent to the trustee exercising their powers under the trust deed. The guardian of the trust often has the power to appoint by deed or Will a successor guardian of the trust in the event the current guardian has died or lost legal capacity.

The appointor of the trust has the power to appoint and remove the trustee of the trust. The appointor of the trust often has the power to appoint by deed or Will a successor appointor of the trust in the event the event the current appointor has died or lost legal capacity.

Variations

From time to time, the trust deed which established the Discretionary Trust or Testamentary Discretionary Trust may need to be amended. By way of example, a trust deed may need to be amended if there have been changes to Taxation Law or Family Law, or if the trustee wishes to confer any additional powers or restrict any existing powers in the trust deed.

The power of amendment is often exercised by the trustee of the trust, with the consent of the guardian of the trust.

The trust deed will contain either a ‘wide’ amendment power or a ‘narrow’ amendment power. A wide amendment power allows the trustee of the trust to amend all provisions of the trust deed, whereas a narrow amendment power only allows the trustee to amend provisions relating to the trusts.

Our experienced team at TLS may assist you by:

• Reviewing your Discretionary Trust and/or Testamentary Discretionary Trust deed and any variations to ensure they are valid;
• Providing you with specific advice regarding the positions of control of your Discretionary Trust and/or Testamentary Discretionary Trust and succession of your trusts; and
• Preparing a new Discretionary Trust deed, a Will incorporating a Testamentary Discretionary Trust, or a deed of variation in relation to your existing Discretionary Trust or Testamentary Discretionary Trust.