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Many businesses and family groups have an Australian trust in their legal structure but while it is common, you should remember how trusts really work. Trusts are complex. It is an equitable relationship between a legal owner or trustee and the beneficiaries under which the trustee holds the assets for. A company is a legal entity, but trusts are not. All actions are undertaken by the trustee but a trust is considered a taxpayer for tax purposes.

Unit or family trust

The types of trusts include unit trusts where the interests of the beneficiaries are utilised in contrast against discretionary trusts where these are at the trustee’s discretion. A hybrid trust is a combination of the two. Tax laws include the concept of fixed trusts and non-fixed trusts. Discretionary trusts and hybrid trusts are non-fixed trusts but not all unit trust are automatically fixed trusts. These are important in the utilisation of tax losses and franking credit distribution. Family trusts make a family trust election.

The trust details are in the trust deed, which makes it a rule book that the trust must run by.

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A trustee can be an individual, group or company but it is common to use a special purpose company for this to distinguish the trust property from the individuals who control the trust. The trustee administers the trust daily and they make decisions in terms of investments, income distributions, etc. in accordance with the trust deed.

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