What is a trust? the types and roles
Recently I had a client call after the tax office kept chasing her up for the tax return for a trust. She said she didn’t understand why they were chasing her because the trustee had been deregistered last year. I told her that the trustee and the trust were two separate things. It reminded me that there is sometimes confusion out there around trusts and trustees.
In this short video, I give you a simple understanding of the role of trust and trustee and the two types of trusts. Also I discuss the role of the important person the “appointor “ and what happens if this person dies. This video will help you understand if a trust is the right way to structure your business and boost asset protection.
If you want us to look over the trust deed or give you any trust advice, please contact me here.
Know a colleague, friend or family member who could benefit from this video please let me know. If you want us to look over the trust deed or give you any trust advice, please contact me here.
VIDEO TRANSCRIPT
Ross Millen:
Hi. What have some of our clients been speaking to us about lately? Well, I had one client who rang up saying that the tax office kept chasing up for the lodging of a tax return for a trust and she said, "Well, I don't know what they're on about, because the trustee was de-registered last year." I pointed out, "Well, just because a trustee has been de-registered doesn't mean that the trust has come to an end. The trust and the trustee are two different things." Anyway, we sorted that out, but it just reminded me that a lot of people have trusts and they perhaps don't really understand what they are and how they work, so let me give you the two-minute version.
There are fundamentally two different types of trusts. We call these unit trusts and discretionary trusts or family discretionary trusts. Now, the family discretionary trust, you've got a trustee. Sometimes it's a company, sometimes it's an individual, but usually a company, and you've got a whole range of beneficiaries. The trustee can decide each year how to distribute income or how to distribute capital to those beneficiaries. Another important person in a discretionary trust is the appointor, or sometimes called a guardian. This is the person with the ultimate control of the trust because they can decide who the trustee is. If the trustee is not making decisions that that person likes, they can remove the trustee and put in another trustee, a company that they control. The appointor is fundamentally important.
Now, we see a number of issues. People are distributing out to beneficiaries, but when they read the trust deed, that person isn't really a beneficiary. Then we have to look for powers in the trust deed to add new beneficiaries, maybe take them out. What happens when the appointor dies or becomes of unsound mind? Who becomes the next appointor? These are important things, and we can review your trust deed for you if you've got any doubts and give you a report telling you about those important individuals and how things work. The second type of trust deed is a unit trust. This is where people own units, they're the beneficiaries, and it's a fixed distribution. If I've got 50 units and you've got 50 units, we get half of the income each year each. It's a little bit like a company, but some more flexibility because you could have different types of units. Maybe my units get the first 10% of the profit, then it's split 50/50.
Again, unit trust can be complicated, and because they're a little bit like a company, we recommend you have a unit holders' agreement so the rights between the unit holders are clearly set out in case there's a business in there and you want to sell the business at a later date. Remember, trustees and trusts are separate things, but if you want us to look over your trust deed or give you any advice about your trust, please contact me, Ross Millen at Millens, and we'd be all too pleased to help you. Thank you.
