special trust

A trust is not a separate legal entity in the same way as a company, rather it is a relationship which exists whereby a person or company (trustee) is compelled to hold property for the benefit of others (beneficiaries).

What follows is an overview of the special trusts and their advantages.

Establishing a trust may achieve a number of objectives including:

  • providing for the family, including in particular very young children;
  • conditions to gifts;
  • benefiting children without losing control over key assets or family wealth;
  • creating a legal framework for the family assets which will last for an agreed period;
  • protecting assets against actual and potential creditors;
  • passing wealth from generation to generation;
  • creating a tax effective structure;
  • safeguarding certain social security entitlements;
  • a single relatively large pool of investment funds which may have more scope to perform well and to develop a long term strategy than a number of smaller pools;
  • allowing administrative, investment and recordkeeping functions and possibly also property management functions to be centralised and handled more efficiently and at lower cost;
  • acting as a de facto superannuation vehicle, without the restrictions applying to conventional superannuation; and
  • vesting discretionary powers in someone who can assist the above tasks.

In particular, special trusts cater for situations where a beneficiary is a minor or a person with disabilities. In the correct circumstances special trusts can offer tax and social security benefits.

Find below a brief description of special trusts.

Special Disability Trust (SDT)

A SDT can be used to provide for the care and accommodation of children with severe disabilities. This trust attracts social security means test concessions for beneficiaries and fewer gifting restrictions for donors. A SDT can have assets worth up to $609,500 (indexed annually and current as at 1 July 2013) without these assets impacting on the trust beneficiary’s income support payment (such as a disability support pension).

Estate Proceeds Trust (EPT)

An EPT is created where the assets of a recently deceased person are placed upon trust following his or her death to obtain favourable adult tax rates for passive income flowing from the trust to children under 18 years. The assets of a deceased person which can be placed in such a trust are limited by tax law and must be placed upon trust within 3 years from the date of death.

Child Maintenance Trust (CMT)

A CMT also provides tax relief similar to the EPT. A CMT is generally used where parties place assets upon trust for their children to partially satisfy their ongoing maintenance obligations. Favourable tax benefits can arise to minors from a CMT.

Superannuation Proceeds Trust (SPT)

A SPT also provides similar relief similar to the EPT. A SPT is a trust that is established from a death benefit that is paid directly by a superannuation fund to the trustee of the SPT for the benefit of the deceased member’s children (generally under 18 years) where there is no surviving spouse. This allows the superannuation moneys to be invested for the benefit of the children until they attain a certain age (e.g. 25 years) and, in the meantime, the funds can be used for the education, maintenance or advancement of the children.

Should you require assistance in respect to establishing a special trust be it a SDT, EPT, CMT or SPT, the governing deed of your special trust and other trust documentation, advice with respect to trustees obligations or on other aspects of trust law, please don’t hesitate to contact us.

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