Family or Discretionary Trust
A trust is basically a legal structure whereby a person or company (the trustee) holds assets on trust for the benefit of a group of beneficiaries. In a family trust, the beneficiaries are usually all related, however they can also include family companies, other family trusts and charities.With a family or discretionary trust, the trustee has discretion as to which beneficiaries will receive income and capital from the trust. This is distinct from a fixed trust (such as a Unit Trust) where the beneficiaries’ entitlement to the income and capital of the trust are fixed.Income and capital gains can be distributed at the trustee’s discretion to any family member they see fit. This includes family members at lower marginal tax rates as a means for reducing tax obligations. They can also exclude income and capital payments to troubled family members.
Unit trusts are a specific type of trust which are used in many commercial arrangements, including property investment & business operations between partners. Unit trusts are established for (usually) un-related parties with a payment of an amount, called “initial sum” by the initial unit holders to the trustee to be held in trust in accordance with the deed for the benefit of the unit holders. As the beneficial ownership of the trust property is divided into units, units can often be bought and sold in a way similar to shares in a company. Some unit trusts are taxed like companies and their unit holders like shareholders.