How To Establish a Trust? A “trust” can be best described as an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries. In a legal sense, a trust is a relationship, not a legal entity, trusts are also treated the same way as taxpayer entities for the purposes of tax administration.
The person enlisted as the trustee is responsible for managing the trust’s tax affairs. This includes registering the trust in the tax system, lodging trust tax returns and also paying some of the tax liabilities.
Beneficiaries (excluding some minors and non-residents) include their share of the trusts net income as income in their own tax returns. There are special rules for some types of trust including family trusts, super funds, and deceased estates.
Setting up a trust can be a straightforward process that you might be able to accomplish using a do-it-yourself online service for a small fee of about $150. Additionally, you’ll pay the stamp duty—a state-based tax. Slightly more complicated structures that require the active management of a corporate trustee can start at around $1,200.
How To Establish a Trust? In establishing trusts, settlors must take the following steps:
Step 1: Decide Upon Original Trust Assets – List all the holding, along with their current value, to be placed in the trust.
Step 2: Appoint Trustee(s) – Designate an individual or financial institution to serve as trustee. Choose wisely, as this person or entity will wield significant legal authority and control over your trust assets.
Since trustees of discretionary trusts have wide powers, it is essential to choose a responsible and impartial individual to embody this position. For this reason, it may be best to appoint an independent trustee, who has no allegiance to any of the beneficiaries listed in the trust deed document.
Step 3: Determine Beneficiaries – Compile a list of people or entities entitled to receive benefits. Include the percentage breakdown of assets intended for each recipient.
Step 4: Draft Trust Deed – A trust deed is a legal document prescribing the rules that govern your fund and the powers of the appointed trustee. It includes the fund’s objectives, specifies original trust assets, identifies the beneficiaries, delineates how benefits are to be paid (either via lump sum or an income stream), details how the trust may be terminated, and establishes rules for operating the trust bank account.
Trust deeds must be signed and dated by all trustees, executed according to state or territory laws, and regularly reviewed and updated as required. Deeds should be crafted by professionals with specialized legal and financial knowledge of trusts.
Step 5: Stamping – Stamp duty is a state-based tax that may be payable on the trust deed, depending on the state or territory. Stamping can be arranged directly through the relevant revenue authority or via a lawyer or accountant in your given state or territory.
Step 6: Register as a Business – As with other Australian business structures, you will need an ABN (Australian Business Number), TFN (Tax File Number), and a business name for the trust. Depending on the trust type and complexity, you may be required to register it as a company.
Step 7: Open a Bank Account – Once the trust has been established, a trust bank account should be opened in the trustee’s name. The bank may require personal details about the trustee(s) and other parties involved before it will open the account.
Step 8: Commence Trust Activity – Once the bank account has been established, the trust becomes operational and can accept contributions or make investments, subject to terms outlined in the trust deed.
