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Trusts are legal structures that are commonly used but very rarely understood.  Even people who set up trusts for others rarely understand what they are.  The taxation treatment of trusts is a major motivator for many clients who have set them up and this normally may have been advised by their accountants.  In Australia, only lawyers are legally allowed to take instructions from clients to prepare trusts for them, accountants are simply not qualified or legally allowed to do so.  There is a reason for that.

In order work out whether a trust is a suitable solution for a client, it is imperative to understand the nature of a trust. 

Trusts have the effect of splitting the legal title and beneficial title to property and vesting those titles in separate persons or entities.  “Title” is simply a reference to ownership in this situation.  So when someone “owns” something without a trust, they have both the legal title and the beneficial title.  The characteristics of a trust can sometimes be of benefit depending on the requirements of the owner of property.  For example, where an owner of property wishes to transfer it to one of their children to “own” but are concerned because the child is only very young, then it is desirable that control of the property be given to an adult until the child becomes of age.  In that situation, a trust is often set up because the characteristics of a trust are helpful.  That is, the parent instructs their lawyer to “set up” the trust and the parent becomes the “Settlor”.  The trust deed is created and the Settlor appoints a Trustee (being the adult that will control the property and that shall have the legal title to the property transferred to them).  The Settlor designates the child as “beneficiary” in the trust deed, and the beneficiary from that point forward holds the beneficial title to the property.  The trustee is obliged to hold the property for the benefit of the beneficiary in accordance with the rules and provisions laid out in the trust deed, and in accordance with the law (both in equity and enshrined in statues such as the Trustee Act 1925 (NSW)).

At JSM Lawyers & Notaries, our approach to discussing the potential creation of trusts with our clients is to first analyse their situation in detail to work out where there may be vulnerabilities in their personal or working lives, and otherwise where structuring improvements can be made.   Some of the concerns that people often voice include:

  1. High taxation payments from income derived from property;

  2. Risks associated with the nature of the work that clients do (ie vulnerability to being sued);

  3. Distribution of ownership of property to family members and associated stamp duty liabilities; and

  4. Asset protection against spousal claims for themselves or the partners (or potential partners) of their children.


Once the analysis has been completed, we would normally present our clients with various options and explain the characteristics and “pros & cons” of each, including the taxation treatment of each.  This approach inevitably leads to clients making proper and well-informed decisions where they know not only how their affairs are structured, but why.  

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