There are several different types of trusts in Australia that can be set up to meet a specific need or purpose. But which one is right for you and your needs?
Trusts are commonly used for asset protection, estate planning, investment as well as for business purposes. A trust requires a person or entity to be appointed as trustee, and the trustee is responsible for holding the assets in the trust on behalf of the beneficiaries.
There are many types of trusts that can be used, and the choice depends on your primary intention. It’s important to set the right trust up for your financial matters as this has implications for asset protection, income distribution and tax planning.
Below we’ve described the five most common types of trusts used in Australia.
5 TYPES OF TRUSTS IN AUSTRALIA
Unit trust
In a unit trust, the beneficiaries hold units in the trust. The income and capital gains are then distributed in accordance with the number of units held by each beneficiary.
A unit trust is typically used for acquiring property.
Discretionary trust
This is the most common type of trust in Australia and unlike a unit trust, the trustee is given full discretion regarding the distribution of profit to beneficiaries.
These types of trusts are often used to manage family wealth and assets. The trustee has flexibility and control over the terms of the trust and can choose what each beneficiary receives depending on their needs.
Hybrid Trust
As the name indicates, a hybrid trust is a combination of unit and discretionary trusts. The intention of this type of trust is to provide the best of both worlds combining the benefits of having both unit holders and discretionary beneficiaries.
Hybrid trusts provide flexibility in income distribution while allowing beneficiaries to have fixed entitlements to trust income and capital.
Testamentary trust
A testamentary trust takes effect when the person who set up the trust (the testator) passes away. This type of trust is commonly set up for Wills and Estate planning and includes conditions on how the deceased wants the assets and funds of the trust to be allocated to its beneficiaries.
Special disability trust
Special disability trusts are established for succession planning by family members to care for a person with a disability or a lifelong medical condition. These trusts pay for daily care, medical care, accommodation, or anything else needed to care for the person with the disability.
Setting up the right trust for your needs
Each trust has different advantages and choosing the right one depends on whether you want to focus on tax planning, asset protection, distribution of income, or investment.
Talk to one of our experienced accountants at Port Phillip Group who will help to guide you on making the right decision for your needs. Please call us on (03) 8790 7700 or email us at reception@portphillipgroup.com.au to have a conversation about which trust is right for you.
