Trusts structures – business ownership and assets
Trusts are structures that are widely used in Australia for ownership, investments, and business purposes.
In this article we are going to focus on trusts and their relevance in business.
What is a trust in the context of a business?
In simple terms a trust is a business structure that doesn’t have an owner or owners in the traditional sense.
A trust imposes an obligation on a person or a company – the trustee – to hold assets, property, or rights for others – the beneficiaries.
A trust is not a separate legal entity, and the trustee is legally responsible for the operation of the trust and legally liable for the debts of the trust.
Trusts are more complex than other business structures and require their own Australian Business Number and Tax File Number.
They can be expensive to set up and operate, having higher ongoing compliance and accounting costs.
Types of Trusts
There are many types of trusts including charitable and superannuation trusts which you would be familiar with.
However, the two main types of trust used in business are:
- Discretionary or family trusts which are commonly used by family units, with the family members being the beneficiaries. The beneficiaries have no defined entitlement to the assets or income of the trust and each year the trustee decides who and what each beneficiary will receive. These types of trusts are very popular from a tax planning perspective and business ownership.
- Fixed or unit trust which unlike a discretionary trust, the beneficiaries have a defined entitlement pursuant to the trust just like a shareholder in a company. Beneficiaries hold defined units in the trust like holding shares in a company. The trustee does not have a discretion as to how to make any distributions. These trusts are often used in venture agreements.
- Hybrid trust which as suggested by the name has elements of both a discretionary and fixed trust and can be popular in businesses structures as they can blend the elements from both types of trust allowing flexibility.
What does a trust need?
A trust is set up as a deed and requires the following elements:
- A settlor who is the person responsible for setting up the trust, deciding the beneficiaries, the trustee and appointor. From a taxation perspective the settlor should not be a beneficiary under the trust.
- A trustee or trustees are responsible for administering the trust and must always act in their best interests of the beneficiaries. All transactions for and on behalf of the trust are done in the name of the trustee.
- A beneficiary or beneficiaries which are person/s or company/s for whose benefit the trust is created and administered. There are two types of beneficiaries, being either primary beneficiaries who are named in the trust deed or general beneficiaries who often are not named individually.
- A trust deed which is the formal document which sets out how the trust will be run and what the trustee is allowed to do.
- An appointor who has the power to appoint and remove the trustee. Not all trust will have an appointor.
How long does a trust last?
In most Australian states a trust will have a life of 80 years.
In South Australia trusts do not have to specify a vesting date and in Queensland from 1 August 2025 the Property Law Act 2023 (Qld) sets a fixed statutory perpetuity/vesting period for trusts of 125 years.
The end date for a trust is in the trust deed and is referred to as the ‘vesting date’ or ‘perpetuity date’.
When the trust ends, everything it owns ‘transfers out’ or more accurately ‘vests’ in the beneficiaries.
The trustee must then transfer the property to the beneficiaries at their direction.
There can be significant taxation and revenue issues when a trust vests, so it is very important to get expert legal and accounting advice.
What are the benefits of trusts in business structures?
The benefits of trust are:
- Tax planning from the view of distributing income
- Legal protection of the assets especially if there is a corporate trustee
- Privacy as compared to a company structure
As is the case with any sort of legal structure there ae also disadvantages such as
- Complexity of the structure
- Expensive to set up and maintain
- The powers of trustees are restricted by the trust deed.
Key take aways
Trusts have long been an effective way of owning business structures in Australia and it is estimated nearly a million trust structures in Australia generating over $400 Billion.
However, before considering whether a trust structure is correct for your circumstances it is important get expert advice, both legal and financial.
How can FC Lawyers help?
Our business and corporate team have extensive experience advising clients across a broad range of industries and professions when it comes to business structures and trusts.
Contact our team to discuss your legal needs.
See also
Selling a business – Business or share sale?
