If you’ve turned on the TV or radio in the last week, chances are you’ve heard about the discussions happening between Celeste Barber’s lawyers and the lawyers representing the RFS. In short, Celeste Barber has raised over $50m in funds to assist the people affected by the recent bushfires in Australia. She had planned for this money to be dispersed through various charities who could then get the money out to people who had lost property and possessions. However, the funds being raised were going to the RFS Trust, which only allows funds to be spent on firefighting equipment, not to assist families or other charities.
Fortunately, the legal discussions happening now are very amicable and hopefully a mutually agreeable solution is reached, but it comes as a timely reminder to businesses and individuals to consider how their trust funds are set up.
In Australia, trust funds are among the nation’s most popular investment structures. Many people mistakenly believe trust funds are for the super-rich, but in reality even moderately well-off individuals can use trusts to protect their personal, family and business assets.
So, what is a trust fund?
A trust is a ‘structure’ with it’s own specific procedures, regulations, and tax considerations – fundamentally its private legal arrangement in which the ownership of one’s assets are placed in an account that’s managed by an individual (or group of individuals), for the benefit of another person(s). In the Celeste Barber case, Celeste is known as the Settlor, because she originally provide the assets; the RFS are the Trustees (they’re charged with managing trusts and distributing their assigned assets); and the people who ultimately receive the assets are known as the beneficiaries (which is where the issue of contention currently lies, because Celeste thought the funds would go directly to those who lost property and possessions, but the RFS Trust has not been set up to allow this to happen).
Why create a trust?
Trusts are mainly created to separate a person’s assets from his or her personal estate. Once a settlor assigns the assets to a trust, they no longer own them. This in turn shields the assets from creditors in bankruptcy proceedings or plaintiffs in lawsuits.
Types of trusts
Trusts come in all different shapes and sizes, and choosing the right trust depends on a number of factors. In Australia, these are the most common types of trust structures:
Ideal for families with private businesses and other income-generating operations. Such trusts give trustees the discretion to decide who receives distributions, and how often payouts occur.
In a Unit Trust, the trustee does not generally hold discretion over the distribution of assets to beneficiaries. These structures divide the trust property into units, similar to shares of stock, and each beneficiary owns a given number of these units. Unit trusts are ideal when multiple families are involved.
As the name suggest, a Hybrid Trust bears characteristics of both the Discretionary and Unit Trusts. The trustee has the ability to distribute trust income among beneficiaries, but the income is proportionally distributed, based on the number of units each beneficiary holds. Hybrid Trust structures are ideal for when significant investment assets are involved.
Establishing a Trust
If you would like to establish a Trust, or would like to discuss the arrangements of your current Trust, please come and have a chat with us at Greenhalgh Pickard. Our team of accountants can recommend the best structure for your needs and provide you with the confidence that you can access trust funds in a way you plan.