Understanding Trusts

Hi RT,

This is really a question you need to discuss with your accountant. There’s also a few good books on the subject and many posts on this site (do a search).

Anyway,

Trusts are a structure whereby assets are owned and controlled by one party (the trustee) for the benefit of another party or parties (the beneficiaries). This means that the trustee controls the assets, but that any income from the assets doesn’t go to the trustee but to the beneficiaries.

The good tax implications are that the income can be distributed at the trustees discretion (in a discretionary trust) to any of the beneficiaries. In practice where there are beneficiaries in different tax brackets the distributions will be to whoever is in the lowest tax bracket, thus saving tax overall.
The bad tax implications are that losses (in a negatively geared situation) are “locked” in the trust and can’t be allocated to individuals to offset other income.

Asset protection is provided by the fact that the assets are owned by the trustee on behalf of the trust. If an individual (beneficiary) gets sued they can’t lose the assets as they don’t own them. If the trustee gets sued they don’t lose the assets as they own them on behalf of the trust not themselves.

Hope this makes sense, I’m sure someone else here can probably explain it better.

Rod.