Types of Trusts

The many faces of trusts in Australia.

Trusts are widely used in managing finances among families, businesses, corporations, and governments. They play a crucial role in investments, planning, and transferring wealth according to specific terms laid out in a trust deed.

A trust is a legal arrangement that establishes a relationship between entities like individuals or companies, where one party (the trustee) holds property for the benefit of another party (the beneficiary).

Trusts can vary in structure, creating different rights and responsibilities for involved parties. Courts enforce trustees' obligations to ensure the property benefits the designated beneficiaries. If trustees fail in their duties, beneficiaries can seek legal recourse.

In Australia, there are various types of trusts:

Fixed Trusts: These involve automatic and fixed property transfers to beneficiaries as outlined in the trust.
Unit Trusts: Similar to shareholders in companies, beneficiaries hold units of the trust, typical in property investment trusts or joint ventures.
Testamentary Trusts: Created upon the death of the person establishing the trust (testator), specified in their Will for beneficiaries.
Discretionary Trusts (Family Trusts): Common in Australia, used for tax planning and distributing income among family members at the trustee's discretion.
Hybrid Trusts: Blend features of fixed and discretionary trusts, offering flexibility in asset allocation.
Charitable Trusts: Managed to benefit charitable organizations, allowing trustees to utilize tax benefits.
Superannuation Trusts: Manage Australian superannuation funds, ensuring income for beneficiaries upon retirement.
Bare Trusts: Involve a single trustee holding property for a known beneficiary (usually an SMSF).

Each type of trust serves different purposes, depending on the needs and relationships of those involved. Understanding these distinctions helps in choosing the right trust for specific financial goals and legal protections.