A trust is an entity where a person (trustee) holds and governs property or other assets guided by the terms of a trust deed for the gain of another person or persons – the beneficiaries of the trust. In the current business world trust deeds have become more prevalent and accepted as a common method of doing business, therefore it is important to understand the differences between them. The recent Bamford Decision will have an impact on almost all family and discretionary trusts and it is important that your trust is amended accordingly in order to be valid.

The Bamford Decision has made several changes to certain legalities regarding trusts. Many family and discretionary trust deeds do not have the necessary provisions to enable them to take advantage of the recent Bamford principles.

This can result in:

• the trustee not being able to determine how income is to be defined
• the trustee becoming unable to attribute particular expenses against income of a  particular category;
• the trustee may not be able to distribute specific categories to particular beneficiaries;
• some beneficiaries may be required to pay tax on amounts they are not entitled to and have not received.

There some key factors which you need to be aware of when reading a trust deed. It is important to know who the Trustee of the trust is. If there is a change in the Trustee, all documentation and records of the trust should be updated. Although the normal life of a trust is 80 years, be sure to know the “vesting date” for your particular trust, as some do exist for much shorter periods. Also if there is an Appointor and/or Guardian for the trust you should be aware of the requirements for written authorisations before the trustee can take certain actions.

There are many different types of trusts and each one serves a different purpose. Some include:

Discretionary Trust

A trust under which the trustee is given power to make choices or is required to decide from time to time which beneficiaries are to receive income and / or capital distributions from a trust fund.

Family Trust

A trust, set up by a deed of settlement for the benefit of beneficiaries all or most of whom are members of the one family.

Flexible Trust

A unit trust investing in a portfolio of assets chosen with regard to their merit and varied from time to time.

Hybrid Trust

A trust which is discretionary for income and non – discretionary for capital, or vice versa.

Testamentary Trust

A testamentary trust can be established under a Will to appoint a trustee to use property for the benefit of the beneficiary in the way that the Will specifies.

Unit Trust

A trust fund which is under the legal control of an independent trustee as the legal owner of all assets and which is administered by a fund manager on behalf of investors who want to come into the arrangement as beneficiaries; such a fund is normally divided into a large number of equal parts called “units”, beneficially owned by the various investors who acquire them for cash and who thereby become “unit holders”.

It is important to know whether the trust deed requires the Trustee’s distribution resolution to be made before the end of a specified day each financial year. Also, be aware of the relevant clauses that outline the distribution of capital and income in favour of a beneficiary and also if there are any default beneficiary provisions.

Here at The Quinn Group our experienced team of lawyers and accountants can help you with any of your questions regarding trusts. For more information on the Bamford Decision and how your trust will be affected, or for any other information on setting up or maintaining a trust please submit an online enquiry. You can also call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment or visit our dedicated website www.alltruststructures.com.au.