What is a Trust Deed

What is a Trust Deed?

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A trust is a legal arrangement in which a person or company (the trustee) looks after assets (trust property) for the benefit of another person or persons(the beneficiaries). Trusts are an attractive structure that can provide asset protection and be able to use flexible tax management options. There are different trust structures that can cater to different needs, such as protecting and distributing the family’s assets or for the purposes of business investment and development. If you are considering setting up a trust, then it is necessary for you to know and understand your deed of trust because this document provides guidelines on how your specific trust will be run.

What is a Trust Deed?

A trust deed is a legal document that details the terms, conditions, and guidelines associated with the creation and management of a trust. 

  • It encompasses the duration and purpose of a trust, 
  • The responsibilities of a trustee, as well as his powers, 
  • The types of assets that can be purchased by the trust 
  • The list of beneficiaries together with their rights to receive income and other property stemming from the holdings are also specified in this document.

Every trustee needs to sign and date the trust deed.

Other Key Terms in a Trust Deed

Appointer

Only an appointer can appoint and remove trustees according to the trust deed. In certain trust deeds, the appointment authority is described as “the protector” or “guardian” of the trust. The appointer does not control the trust on a day to day basis since this is handled by the trustee. Nevertheless, they have a high level of control over the trust in that they are able to appoint, replace and remove trustees. This includes when the trustee resigns or dies.

For this reason, it is necessary to select an appropriate appointer for your trust. There can be several appointers.

Beneficiary

The beneficiary is the one who receives benefits from the trust. It can have several beneficiaries such as individuals, corporations or even other trusts based on the requirements of the trust. Typically, there are two types of beneficiaries: primary beneficiaries, clearly referred to in the trust deed and general beneficiaries – described as a group (say of the spouse and family members of the primary beneficiary). Discretionary trust deeds typically define large beneficiary groups, allowing the trustee to define each year who will receive income. For instance, such flexibility can allow the trust to benefit from its tax advantages on a scale that’s maximized.

Settlor

The settlor is the person who makes an initial endowment to the trust, called the settlement often a nominal sum. Once this has been achieved, the settlor will generally not take any further part in the trust. The settlor should ideally be an unrelated third party. It is advisable to consult a professional advisor, such as an accountant or lawyer, to act as the settlor. It is also better for the settlor not to act as a trustee or beneficiary of the trust in order to ensure compliance with tax requirements.

Term

A trust has a limited lifespan that is up to 80 years in many Australian states and territories. On the other hand, it can be arranged for a shorter period or linked to certain trigger events. For example, if grandparents (as trustees) set up a trust for their grandchildren (as beneficiaries) and intend them to have access to the trust assets as income on their respective eighteenth birthdays, this particular trigger event should be clearly defined in the deed governing that trust.

Trustee

A trustee, a person or a corporation that manages and supervises property for the benefit of beneficiaries. When a company performs as trustee, it is known as corporate trustee. Multiple trustees may be named for a trust and all of them should sign and date the Trust deed.

The trustee’s roles include the management of the property held in trust as per the purposes specified in the trust deed. They must operate under the laws of the appropriate state or territory. Besides, trustees also have to know powers and duties enshrined in the trust deed before acting for the trust e.g buying certain assets or executing documents on its behalf

Trustees have strict duties such as acting honestly, reasonably and in the best interests of the trust. If these duties are breached, the trustee can be held liable for any damage that arises from this.

Vesting Date of a Trust Deed

The vesting date signals the termination of the trust. Normally you can postpone this date until before the one fixed for vesting and total duration of trust doesn’t reach 80 years. This however can not be altered after the vesting date.

Key Takeaways

In brief, trusts are a legal entity through which assets can be administered on behalf of a beneficiary by a trustee. Trust management and invocation operate by the trust deed and Acts. If you want to set up a trust, it is advisable that you seek professional assistance in drafting your trust deed. This is to make sure we draft the deed of trust correctly, review it and update where necessary ensuring that such goes along with laws governing state or territory. Book a free consultation with FastLane Group.