How does a Trust Work?

Nov 22, 2017
Reading Time: 2 minutes
Written by Adam Lewis

Generally, a trust is where there is an arrangement for one individual to hold property for the benefit of a third party. The person holding the property is known as the ‘trustee’ and holds the property on trust for the ‘beneficiary’. Whilst a trust is not a legal entity that can hold property, a trustee of the trust will hold legal ownership of the asset but only for the benefit of the beneficiaries.

For example, in a testamentary trust, an individual owning property such as a house, may direct somebody to hold their property on trust for their children if they die. Whoever is consider the trustee therefore owes a duty to the children to hold the property until they come of age to receive it.

LawPath can assist you in setting up a trust. Whether you are looking to plan out your estate or set up a trust, LawPath can help you with fixed price quotes from a range of Estate Planning Lawyers.

What types of trusts are there?

Trusts can last up to 80 years in New South Wales, usually the time period for the trust is expressed within the trust deed. Once the period of time specified is reached, the trust will ‘vest’, meaning that all the beneficiaries will obtain their entitlement to the assets in the trust, the trustee must then distribute these assets accordingly.

It is important to understand that there are many different types of trusts depending on the circumstances.

Discretionary Trust

A discretionary trust is the most common form of trust and will commonly come in the form of a family trust. Basically, the beneficiary of the trust does not have a fixed entitlement to the trust funds. Usually, the trustee will have the discretion to adjust who and what each beneficiary receives.

If you are thinking of setting up a discretionary trust, it is important you set out the terms and conditions through a Discretionary Trust Deed.

Fixed Trusts

Also known as a ‘unit trust’, a fixed trust is where the beneficiaries of the trust have a fixed and defined entitlement under the trust. Their entitlement cannot be changed by the trustee and the beneficiaries will hold larger rights under the trust.

An example of a fixed trust is where a child is entitled to property or money but is not of age to legally take ownership. The trust will be held for the child’s benefit but nothing the trustee does can adjust the right that the child has to the asset.

Hybrid Trusts

Hybrid trusts are a combination of a discretionary and a fixed trust. Essentially, the trustee must input some sort of fixed entitlement but will have discretion in other areas such as the income that the beneficiaries receive.


If you are planning on setting up an estate or trust, it is crucial to understand that the type of trust you are setting up will provide different rights and liabilities to the members of the trust. Through the Lawyer Marketplace, LawPath can provide fixed price quotes for a range of trust related inquiries.

Need to find out more about setting up a trust? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from one our network of 750+ expert lawyers or any other legal needs.

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