If you plan to start a small business in Australia, you must consider the four usual business structures – sole trader, partnership, company, and trust. Of these four, trust setup involves more complex processes than the other three, which is why it is always recommended to consult any trust establishment services for professional assistance. At the same time, trust can be beneficial if you plan to pass on your assets to your beloved ones. This blog will give you a clear idea of how a trust fund looks and how this investment structure can benefit you in the long term.
What is a trust fund?
In the case of a trust fund, assets are placed into an account held by another person, and thus, this structure benefits other people than the original owner. Rather than getting transferred to the beneficiary from the owner, money or assets of a trust fund first goes from the owner to the fund and then to beneficiaries at a specified time.
Trust funds usually hold different types of assets. These assets may include cash, real estate, stocks, and high-value items such as fine art or antique products.
Who is involved in a trust structure?
As per rules, a trust fund involves multiple parties.
- Settlors: As the name suggests, settlors are people who set up the trust.
- Trustees: A trustee manages the trust fund and distributes the assets to the trust beneficiaries.
- Beneficiaries: Beneficiaries are people who are benefitted from the trust. It means they receive assets from the trust.
What are the different types of trusts formed in Australia?
There are five recognized trust structures in Australia that you must be aware of before setting up your own.
Family trusts
Family trusts are the most common trust structures found in Australia, also called discretionary trusts. They are mostly created by families with businesses or assets, which must be distributed more flexibly instead of as a single lump sum.
A trust allows people to distribute their assets in specified amounts at a specified time, making them a more suitable option in terms of tax when compared with traditional inheritance.
Fixed trusts or unit trusts
In a fixed or unit trust structure, you will not need to determine exactly when the assets should be distributed. Here, the assets are split into separate units, and unit-holders receive their payments at the end of each financial year. This concept is pretty similar to shareholders receiving their portion of dividends.
For example, a trust fund is split into 50 separate units. In that case, there can be either 50 separate unit-holders or two holders, each holding 25 units.
Testimony trusts
A testimony trust fund is created according to the terms of a deceased person’s will. Note that these trusts are created after the death of a person. Testimony trusts are usually set up when dying individuals have children too young to deal with finances. As per will terms, the trustee may decide to release the assets to help them with education. However, the trustee cannot fully release the assets to the children until they legally turn 18.
Special disability trusts
A special disability trust or SDT is a specialized type of trust operating in Australia. As the name indicates, this trust helps a person with a severe cognitive disability cover all the necessary healthcare costs. One thing to note here is that Services Australia should verify special disability trust.
Charitable trusts
In the case of a charitable trust, elected charities receive the assets every year as long as they stay elected.
Read More: Know The Best Estate Tax Preparation Services
How To Set Up A Trust In Australia In 2022?
Though trust setup can be complicated and involve larger investments, proper completion of the necessary steps can ease the process. You can also find DIY methods available online in exchange for small fees and stamp duty costs. The steps are as follows.
Decide on the assets you will place in the trust fund
First, you will need to choose what to place in your trust fund. Make sure that the value of the particular assets is also listed. A financial advisor Perth can help you with it.
Choose a trustee
As the trustee will manage all the finances, choosing an individual for the position is one of the vital steps you will go through. It is always good to choose an independent trustee to prevent any conflict of interest and ensure clarity.
Choose the beneficiaries
Next, you must choose who will receive trust assets. You also have to mention what amount each will receive in this step. If the amount is in a percentage, you must state that, too. Alternatively, you can also ask your trustee to perform this duty.
Create a trust deed
Every trust fund in Australia must have a proper trust deed. A trust deed is a formal document that includes specific trust rules, a trustee’s rights, etc. Note that you cannot set up a trust without a deed, and so, to prepare it correctly, you can consider hiring a professional.
Settle and sing the trust
As the settlor, you will need to sign the trust. Individuals listed as trustees should also sign.
Pay stamp duty
Depending on the location you set up your trust fund, the Australian state stamp duty will apply. If it is applicable in your state, you must have enough time in your hands to fulfill payment terms.
Get the ABN and TFN
Like any other business structure, an ABN (Australian Business Number) and a TFN (Tax File Number) are two key requirements. For this stage, too, you can take help from a professional.
Create a bank account
Opening a bank account means your trust fund is now active> Note that the bank account should be opened in the name of the trustee.
Who can help you?
Many business consultancies in Perth can help you get in touch with a top financial advisor. For any help, you can hire these professionals, and you can have the best business advice for your trust in exchange for a reasonable price.