A fixed trust is one of the most well-known types of trust. In a fixed trust, each beneficiary is entitled to a fixed proportion of the capital and income of the trust each year.

The trustee is bound to distribute the assets to the beneficiaries according to these fixed amounts and they are not required to exercise discretion since each beneficiary is automatically entitled to their fixed share.

Why do people use fixed trusts?

As the share entitlement of this type of trust is predetermined and fixed, it often means that there is less conflict amongst the beneficiaries of the trust.

A unit trust is a trust that is divided into units for the beneficiaries. Each beneficiary of the trust holds a certain number of “units” and they are entitled to the income and capital of the fund proportional to the number of units they hold.

The beneficiaries in a unit trust are often referred to as unit-holders and they are able to sell their units in the trust to interested buyers.

Why do people use unit trusts?

Unit trusts are often used by unrelated parties to co-own assets. Beneficiaries each have a fixed interest in the trust’s property. There are also tax and asset protection advantages for unit trusts.

A charitable trust is a trust registered for a charitable purpose, such as advancing health, education, culture or human rights. There are no nominated beneficiaries and the trust must fund the charitable purpose stated. The trust must be not-for-profit, have a charitable purpose that is for the public benefit, and must not be a person, political party or government entity.

Why do people use charitable trusts?

Charitable trusts are often used for tax concessions. Registered trusts can for example, apply for income tax and GST exemptions, as well as deductible gift recipient status, and can receive Commonwealth grants. Charitable trust status also helps garner public confidence and donations.

In discretionary trusts, the trustee has greater control over the way the assets and income of the trust are distributed to the beneficiaries. Unlike fixed trusts, the beneficiaries do not have any fixed interests or entitlements to the property or income of the trust; rather, their entitlement is at the discretion of the trustee. Trustees are also not required to be transparent about the reasons for the allocation of trust assets.

Why do people use discretionary family trusts?

Discretionary trusts are usually used for their business advantages. For example, a person can hold their assets without being the legal owner of the property. As such, in instances where a beneficiary may be pursued by a creditor, becomes bankrupt, or is sued personally, the assets in the trust are protected because they are the property of the trustee not the beneficiary.

Special disability trusts are often set up by family members of a person affected by a disability. The aim is to provide a way for that person to be looked after if the family members die.

Assets are left in a trust to fund the person’s ongoing medical, care and accommodation expenses. The trust should not affect the person’s entitlement to a disability support pension.

A testamentary trust is created by a will. The aim is to provide a greater level of control over how assets are distributed to beneficiaries. The trust can provide an entire estate, a specific asset or a specific portion of an estate to a beneficiary.

This type of trust does not come into effect until after the trustor’s death and is commonly used in estate planning. Multiple testamentary trusts can be created by one will.

A child maintenance trust is usually created due to a family breakdown. However, it can also be used if the parents of a child are not living together, and a financial maintenance order is in place.

Why do people use child maintenance trusts?

A child maintenance trust allows property required for the ongoing support of children to be kept in a trust separate from both parents. Such a trust protects property from creditors seeking a parent’s assets and can reduce income tax payable by parents.

A bare trust is the simplest form of a trust. The trustee holds the property of the trustor for the beneficiary. The trustee has no duties to perform other than to transfer the property of the trust to the beneficiary when they are instructed.

Why do people use bare trusts?

Bare trusts are used to hold real estate when the property owner prefers not to disclose the ownership.

A hybrid trust combines structures of different trusts. Most commonly, a hybrid trust is a cross between a unit trust and a discretionary trust.

The trustee of a hybrid trust has the discretion to distribute income from the trust to the discretionary beneficiaries. The unit-holders have the right to receive income and capital in proportion to the units they hold.

Why do people use hybrid trusts?

The flexibility of a hybrid trust makes it particularly suitable for situations where two or more unrelated people co-own an investment or business.

A superannuation trust provides retirement or death benefits to its members, the beneficiaries. All superannuation funds in Australia operate as trusts.

Why do people use superannuation trusts?

Superannuation trusts offer tax concessions, flexibility for beneficiaries to make investment decisions to maximise their returns, and a process to accumulate assets which can be used to pay a pension at retirement. However, they require the beneficiaries to pay attention to the performance of their investments, as well as to the economy and changes in legislation.