What is a Discretionary Trust?

Discretionary Trust Frequently Asked Questions

Frequently Asked Questions

What is a Discretionary Trust?

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In a discretionary trust (or family trust) the beneficiaries do not have fixed entitlements or interest in the trust. The Trustee decides on any amount (if any) to distribute to any of the beneficiaries. Some reasons to establish a discretionary trust may include:

  • Protection of Assets - A discretionary trust structure has asset protection advantages. The Trustee is the legal owner of any asset(s) held by the trust. A Trustee may hold the asset(s) for the benefit of the beneficiaries. This may protect the assets of the trust from creditors.
  • Flexibility – A Discretionary trust provides flexibility benefits, especially for investment income to be distributed around a family. Income from the trust can be split to potentially minimise tax obligations for beneficiaries or to provide for specific needs. Individual or company structures may not provide this flexibility.
  • Tax Benefits – The main benefit of operating through a trust is that the income may be distributed at the Trustee’s discretion. Discretionary trusts may also benefit from a capital gains tax concessions – if applicable.
  • Succession Planning – A discretionary trust can operate for as long as is specified in the trust deed, up to 80 years (subject to state laws). This enables long-term planning for the welfare of the beneficiaries.

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