Newspaper article Coffs Coast Advocate (Coffs Harbour, Australia)

Trusts Overview

Newspaper article Coffs Coast Advocate (Coffs Harbour, Australia)

Trusts Overview

Article excerpt

TRUSTS are a fundamental element in the planning of business, investment and family financial affairs. Although trusts are commonplace, they are frequently poorly understood.

What is a trust?

This is probably the most misunderstood aspect of trusts. A frequently held, but erroneous view, is that a trust is a legal entity or person, like a company or an individual.

Put simply, then, a trust is a relationship which exists where A holds property for the benefit of B. A is known as the trustee and is the legal owner of the property which is held on trust for the beneficiary B. The trustee can be an individual, group of individuals or a company. There can be more than one trustee and there can be more than one beneficiary. Where there is only one beneficiary the trustee and beneficiary must be different if the trust is to be valid.

The courts will very strictly enforce the nature of the trustee's obligations to the beneficiaries so that, while the trustee is the legal owner of the relevant property, the property must be used only for the benefit of the beneficiaries. Trustees have what is known as a fiduciary duty towards beneficiaries and the courts will always enforce this duty rigorously.

Why a trust and which kind?

Apart from any tax benefits that might be associated with a trust, there are also benefits that can arise from the flexibility that a trust affords in responding to changed circumstances.

A trust can give some protection from creditors and is able to accommodate an employer/employee relationship. In family matters, the flexibility, control and limited liability aspects combined with potential tax savings, make discretionary trusts very popular.

There are strengths and weaknesses associated with trusts and it is important for individuals to understand what they are and how the trust will evolve with changed circumstances.

In essence these are trusts where the trustee holds the trust assets for the benefit of specific beneficiaries in certain fixed proportions. In such a case the trustee does not have to exercise a discretion since each beneficiary is automatically entitled to his or her fixed share of the capital and income of the trust. …

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