As an investor in Australia, you may be wondering whether you need a trust. What is a trust, and how can you benefit from it?
A trust is a legal arrangement in which one person (the trustee) holds property or assets for another person (the beneficiary). You can use trusts for various purposes, including asset protection, estate planning, and tax minimisation. There are many reasons why investors in Australia might need a trust.
Asset protection
If you hold assets in your name, they may be at risk if you become sued or go bankrupt. However, if they are held in a trust, they should be protected from creditors because the trustee, not the beneficiary, owns the assets in a trust.
Estate planning
You can use a trust to ensure that your assets are distributed according to your wishes after you die. For instance, if your children are young, you may want to set up a trust so they will inherit your estate when they reach a certain age (e.g., 18 or 21). It can help to protect them from misusing or squandering their inheritance.
Tax minimisation
Trusts can also be used for tax minimisation purposes. For instance, if you hold an investment in a trust, the income may be taxed at a lower rate than if held in your name.
Flexibility
Trusts offer investors greater flexibility than other legal structures, such as companies. For example, trusts can have multiple trustees and beneficiaries who can easily change the terms of the trust.
Confidentiality
Trusts can provide confidentiality for the beneficiaries because their names do not need to be disclosed to set up or administer a trust.
Professional management
Trusts can also offer professional management of assets because the trustee is responsible for managing the property and ensuring that it is used following the trust deed. Trustees are usually professionals, such as lawyers or accountants, with experience managing trusts.
Simplicity
Trusts can be simpler and cheaper to set up than other legal structures, such as companies, because there is no need to register a trust with the Australian Securities and Investments Commission (ASIC).
Perpetual succession
Another advantage of trusts is that they have perpetual succession, meaning the trust continues to exist even if the trustee dies or changes. Trusts in perpetual succession can be beneficial because they can provide continuity and stability for the beneficiaries.
How to open a trust
Choose the type of trust
The first thing to set up a trust is to choose a suitable one. There are two main types of trusts: fixed trusts and discretionary trusts.
Fixed trusts
A fixed trust is a trust where the beneficiaries and their entitlements are set out in the trust deed, meaning the trustee has no discretion over how the trust property is distributed.
Discretionary trusts
A discretionary trust is where the beneficiaries and their entitlements are not set out in the trust deed, meaning the trustee has complete discretion over how the trust property is distributed.
Choose the trustees
The next step is to choose who will act as trustees of the trust. The trustees are the people who will be responsible for managing the trust property and making sure that it is used following the trust deed.
Choose the beneficiaries
The next step is to choose who will benefit from the trust. The beneficiaries will receive the trust property or the income from the trust.
Draft and execute the trust deed
The trust deed is an agreement that sets out the terms of the trust. It includes the names of the trustees and beneficiaries and the rules about how the trust will be managed. Once the deed has been drafted, it must be signed by all trustees and beneficiaries.
Register and fund the trust
The next step is to register the trust with the relevant authority. It may be the Australian Securities and Investments Commission (ASIC) or your state or territory revenue office. It would be best to also fund the trust by transferring property or money into it.
You can have a look at how you can set up a trust at Saxo Markets.