Asset Protection and Discretionary Trusts (Part One)

  • Blog
  • Asset Protection and Discretionary Trusts (Part One)
View All Articles

Scroll for more

I was recently requested by KMPG on the Sunshine Coast to address their accountants in relation to my thoughts on trusts and asset protection. This is a very good topic and it highlights the importance of giving detailed consideration, and obtaining appropriate advice, before a business or asset ownership structure is established.

In this blog I will talk about what a trust is, the roles in a trust, and benefits of a trust.

What is a discretionary trust?

Generally speaking, a trust involves the legal ownership of the property by one person or entity (the trustee) for the benefit of other parties – the beneficiaries.

In a Discretionary Trust no individual person owns the benefit of the assets as it is up to the trustee to decide who receives income or capital distributions from the trust.

Roles in the trust

There are a number of very important roles in the trust and the people or entities that carry these roles, will have an impact on asset protection strategies.

Settlor – The settlor’s function is to effectively establish or “settle” the trust and give the assets of the trust to the trustee to hold those assets for the benefit of the beneficiaries on the terms set out in the deed.  The settlor will have no further involvement in the trust after executing the trust deed. It is important that the settlor is not a beneficiary or trustee.

Trustee – The trustee holds the legal ownership of the assets of the trust. The trustee is responsible for the assets of the trust, and the trust itself.  The trustee has the powers to manage the assets of the trust and conduct the trust on a day to day basis. Importantly, the trustee can decide who to distribute the income and capital of the trust to.

Beneficiaries – Beneficiaries have the beneficial interest in a trust. They benefit from the trust income and assets if the trustee elects to distribute to a beneficiary.

Appointor – The appointor is the party who has the ultimate control over the trust because the appointor can appoint and remove the trustee. It is this position, along with the trustee, that needs to be considered very carefully when establishing a trust.

Benefits of a Discretionary Trust

There are a number of benefits from establishing a family trust including:

  1. Tax advantages – income from a trust can be distributed to different parties to assist in tax planning;
  2. Asset protection – subject to some limitations, a family trust can protect family assets from the liabilities of one or more family members;
  3. Succession planning – a trust allows family assets to pass to future generations with minimal tax and stamp duty implications; and
  4. Estate planning – a trust can be a useful tool to avoid challenges to a Will.

In my next blog I will discuss the limitations on asset protection for trusts, and discuss some asset protection strategies for trusts.

It is very important to ensure that detailed legal and accounting advice is provided before a structure is finalised. Please do not hesitate to contact me if you have any queries.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


Prefer to get in touch?

With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.

Free call 1800 640 509
  • This field is for validation purposes and should be left unchanged.