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Discretionary Trust Deed

Discretionary Trust Deed

4.7 (69)
under 30 minutes
under 30 minutes
Last updated December 2018
Last updated September 9, 2019
Suitable for all Australia states and territories
Suitable for all Australia states and territories

You can use this Discretionary Trust Deed to establish a discretionary trust in any state/territory in Australia. Customisable and ready to use in under 10 minutes.

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Document Overview

A discretionary trust is a trust where the distribution of capital and/or income of the trust to the beneficiaries of the trust is at the discretion of you, the trustee. Hence, each beneficiary is not entitled to a fixed entitlement to the trust funds. As the trustee, you will not have complete discretion in distributing the trust and you are limited to the obligations under the trust deed. A discretionary trust has various benefits; most notably, it provides significant asset protection for the beneficiaries. To lodge a trust deed within Australia, a stamp duty may be payable to the relevant revenue authority in your state/territory.

Use this Discretionary Trust Deed if:

  • You would like to establish a family trust; or
  • You would like to gift property or moneys to be held on trust.

What does the Discretionary Trust Deed cover?

  • Establishing the trust;
  • Defining the relevant beneficiaries;
  • Distribution of income and capital to the beneficiaries;
  • Winding up of the trust;
  • Appointment of the trustee, including powers, remuneration;
  • Removal and appointment of future trustees;
  • Responsibility for financial records; and
  • A relevant indemnity.

Other names for Discretionary Trust Deed include:

  • Family Trust Deed; and
  • Trust Deed.

What’s the difference Between a Discretionary Trust and a:

Testamentary trust

A discretionary trust is established by the person who sets up the trust, trustee, and the trustee has the power to choose the amount of money that will be paid to each beneficiary under the trust. A testamentary trust that is set up through your will and will not come into effect until you have passed away. The benefit of setting up this type of trust is that access is only granted once you pass away, which is useful if you have young children or loved ones who may not be able to manage their inheritance appropriately. The main difference between the two is the fact that a testamentary trust only comes into effect once the trustee passes away. An advantage of setting up a Testamentary Trust is that you can decide how the assets in the trust are to be managed by the beneficiaries, such as limiting spending per year and the amount dedicated for the beneficiaries education.

Family Trust

A discretionary trust is established by the person who sets up the trust, trustee, and the trustee has the power to choose the amount of money that will be paid to each beneficiary under the trust. Whereas a family trust is refers to a trust that is generally set up to benefit a family business or member of the family included in the trust. A family trust is discretionary trust that is set up to hold a family’s assets or to conduct a family business through a trust. The key in forming a family trust is holding a “Family Trust Election,” which officially enables the trust to become a family trust.

How does a trust assist with asset protection?

A trust can protect you from being sued and potentially losing all of your assets. As the trustee does not legally own the assets, as they are owned by the trust, the assets are not theirs to lose in the event that they get sued. With a discretionary trust, the beneficiary does not own any of the assets in the trust. The beneficiary does not have a contingent interest in any of the discretionary trusts assets and therefore if a beneficiary is attacked by creditors, becomes bankrupt or is divorced, the trust assets will most likely remain secure. With this in mind, this is a great reason to use discretionary trusts when seeking to protect assets through a trust.

Should a lawyer review my Discretionary Trust deed?

To properly take advantage of a discretionary trust, it is necessary to obtain sound legal and tax advice. There are various implications that can result from incorrect drafting of a deed, so it is very important to seek legal advice to ensure that your trust is set up correctly in order to maximise security and protection.

What is the difference between a custodian and a trustee?

A trustee is a person who has a fiduciary duty to hold assets on trust for the benefit of another. Whereas a custodian is not a fiduciary and is only responsible for the safekeeping of the assets, not the distribution. A custodian does not provide investment advice or have any sway in bhow the assets within the trust are to be invested, unlike a trustee.

Is it possible to remove trustees after setting up a trust?

There are a number of ways that a trustee can be removed, many of which depend on the the terms of the trust agreement and any exclusion clause, termination clause or breach implications it may have. When looking to remove a trustee, the trust instrument would be the place to start. The trust instrument is a document that creates and sets out the terms of the trust. This document outlines the duties of the trustee, but may also provide the process to remove a trustee from a trust. Trustees can also be removed through a court process as well as through a legislation approach within the parameters of the trust. There are also other methods of removing a trustee from a trust and to ensure that this process is done correctly, make sure to seek legal advice in order to find the appropriate way to achieve this process.

Can I transfer control of my trust?

Yes, you are able to transfer control of your trust. Generally there is an appointer who will allocate the transfer of trustee’s in the event of the death of the originating trustee or other circumstances where the trustee is no longer able to carry out their fiduciary duties.

 

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