CGW Structures offers four different types of trust deeds.
- Discretionary trusts are also commonly known as ‘family trusts’.
- A discretionary trust provides flexibility by offering a wide range of beneficiaries without any particular beneficiary having a fixed interest.
- Beneficiaries of discretionary trusts are commonly separated into categories
- It is generally intended that the primary beneficiaries will receive the majority of the benefits from the trust.
- The secondary beneficiaries are the relatives of the primary beneficiaries (as well as tax exempt and some other organisations).
- The tertiary beneficiaries are generally related companies, trusts and other entities.
- The trustee makes decisions for the trust and has the discretion to distribute income and capital to any of the beneficiaries on a flexible basis. This allows parties the opportunity to assess their tax position on a year-by-year basis and distribute income in a way so as to achieve the most effective after tax distribution of income.
- The appointor is the person who has the power to change the trustee and for this reason the appointor has the ultimate control.
Direct descendants trust
- A direct descendants trust is a type of discretionary trust that contains provisions generally preventing the trustee from making capital distributions to anyone other than a direct descendant of the nominated beneficiaries (usually the primary beneficiaries).
- This type of trust may be attractive to clients who have concerns about non-immediate family members (such as sons-in-law and daughters-in-law) or third parties accessing the assets of the trust.
- However, despite this restriction the trust will still have the usual wide range of income beneficiaries which provides flexibility for tax planning purposes.
- Unit trusts are commonly used as business structures because they allow for the distribution of income and capital in fixed proportions according to the number and class of units held by the unitholders.
- A normal unit trust allows for the issue of ordinary units, partly-paid units and discretionary income units (special units).
- The discretionary income units can be particularly useful where clients want to have fixed capital entitlements in the trust but want to have flexibility with income distributions.
Fixed Unit Trust
- A fixed unit trust is a creature of the ‘tax world’.
- Many people mistakenly believe that all unit trusts are ‘fixed trusts’. This is not the case.
- Unless there are specific provisions limiting the power of the trustee to issue or redeem units and to vary the trust (as well as other issues), the trust will not be a fixed trust.
- There are a number of situations where it is important that a unit trust qualifies as a fixed trust:
- A trust that holds shares in a company will only be able to get the benefit of franking credits on dividends if it is a fixed trust or makes a family trust election.
- If a trust owns 51% or more of the shares in a company that has losses, the company may not satisfy the continuity of ownership test unless the trust is a fixed trust or makes a family trust election.