Resources - Discretionary Trust

With discretionary trusts, the decisions as to who or what entity will receive allocations of income derived by the trust is determined by the discretion of the trustee.

What is a trust?

Simply put, it is an obligation owed by a person or entity in relation to property that person or entity owes to others described in the trust deed as beneficiaries. A trust is not a legal person, like a company. Trusts can take many forms. They are usually differentiated by reason of the nature of the interest that the beneficiaries have in the trust assets.

Difference between Hybrid Discretionary Trusts and Discretionary Trusts

This trust is a discretionary trust with an additional feature which enables the Trustee to issue units to beneficiaries to create fixed entitlements to capital and to income of the trust. It is modelled on the Discretionary trust but has additional annexures relating to the units – the application and transfer of them.

And with these deeds, you can choose whether you want foreign persons and entities to be excluded or not in order to avoid the land tax and stamp duty surcharges which can apply when these trusts are used to buy residential real estate and in some cases farmland.

What is its use

Hybrid discretionary trust is often used, for example when the trust is initially used to run a business for a family. If an outside investor or a partner becomes involved in the business, they may want a defined share of the income generated by the business and the value of the business. This can be achieved by the trustee then issuing units to that investor or partner which entitle that person to a defined share of the income and capital value of the business.

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