Choosing a Trust Structure for Your Business

Choosing a Trust Structure for Your Business

A trust is not a legal entity, but can be used as a business structure. A trust is basically a relationship between a trustee and a beneficiary where the trustee works on a business, or holds property, income or assets, on behalf of the beneficiaries. There are many different types of trusts in Australia.

A cash management trust is where individuals pool their (relatively) small investments to enable them to invest in short-term securities like treasury notes, which require minimum investment levels that they might not reach on their own.  Cash trusts operate under a trust deed, with a trustee overseeing activities, and a manager responsible for the investment strategy.

A fixed trust means that the beneficiaries have a fixed entitlement to all the income and capital of the trust, and the trustee will distribute this fixed amount to them, as set out by the trust deed. A fixed unit trust is basically the same thing, but the income or capital is represented by units.

A discretionary trust, unlike a fixed trust, depends on the discretion of the trustee to be exercised for them to receive any proceeds. Family Trusts are a kind of discretionary trust, and are often used by family run businesses, to benefit members of a family. They are useful in that they allow you to share your tax burden among the members of your family, to minimise your tax payment.

A hybrid trust is a combination of fixed and discretionary, and the fixed part of the trust proceeds will be set out in the trust deed.