Overview

A trust is a relationship that exists between two parties, the trustee(s) and the beneficiaries. Trusts offer the most flexibility as well as asset protection. There are many variations however, the basic, are unit and discretionary trusts.

A superannuation fund is a trust. The trustee holds assets for the beneficiaries (i.e. members). With the recent changes that allow a fund to borrow self managed super has become extremely popular.

Unit trusts provide less flexibility as far as distributions are concerned however, offer flexibility as far as establishing certain entitlements especially where there are unrelated parties. Very popular as a combined structure with superannuation funds, there still needs to be care taken, as undercapitalised unit trusts have the same problem when returning non-assessable capital as companies.

With the ability to distribute at the discretion of the trustee, assets protected against creditors and ability to refinance in certain cases, discretionary trusts should always be considered as an investment vehicle. Advantages of investing through a discretionary trust include:

• Income can be distributed between beneficiaries at the trustee's discretion.
• Capital gains can be distributed between beneficiaries at the trustee's discretion.
• The assets of the trust are protected from litigation against beneficiaries.
• New beneficiaries can be added at ease and usually without any capital gains tax liability.
• The return of non-assessable capital problems associated with companies and unit trusts do not apply to discretionary trusts.