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[MoreMore Insights] Types of Trusts in Australia

In Australia, different types of trusts are widely used for investments, family financial affairs and business purposes. Most people use trusts to purchase investment properties because of the asset protection and tax advantages they offer. The following types of trusts are available for home loans, but still require specific circumstances to apply. Feel free to contact us for more detailed information.

Discretionary Trusts

Discretionary trusts are the most common type of trust in Australia. In the case of a discretionary trust, the trustee has complete discretion in how the income of the trust is distributed to the beneficiaries. So the beneficiaries’ interests are not fixed. Generally, the trustee can change the way trust income is distributed each year. Discretionary trusts have the flexibility to mitigate the risk to personal assets and prevent insolvency. The family trust, as previously described, is a type of discretionary trust.

Unit Trusts

A unit trust works similarly to a shareholder holding shares in a company. Each beneficiary of a unit trust holds a certain number of units and is entitled to receive trust income and capital in proportion to the units they hold. In other words, the trust property in a unit trust is held absolutely for the benefit of the holders. And holders are the beneficiaries of the trust. As such, the trustee has no right to allocate trust income or capital among holders. Unit trusts are usually set up for investment purposes or joint business ventures. The members all receive a percentage interest based on these units. However, lending institutions are less receptive to unit trusts.

Hybrid Trusts

A hybrid trust is a trust that has the characteristics of both a fixed trust and a discretionary trust, blending the two together to form a flexible entity that is quite attractive to many people. There is a portion of the income that can be distributed flexibly and another portion that is fixed, and the non-fixed portion of this income can be released to the beneficiaries as appropriate. In some cases, a hybrid trust can be a very effective vehicle for combining fixed and non-fixed rights to income or assets and can create some good benefits, but in some cases the opposite may be true.

Self-Managed Superannuation Funds Trust

This is a trust structure in which assets can be held, with no more than six members, who together decide on the operation of the capital and the investment projects, etc. Investors want to manage their own superannuation, so that the members are both trustees and beneficiaries and can flexibly adapt the rules to meet their specific needs and circumstances. If the individual has a high income, this type of trust can be used to reduce tax. However, it is important to note that in order to manage it themself, investors need to have a good understanding of the market and take advantage of investment opportunities.

Real Estate Investment Trust

Real estate investment trusts (REITs), provide investors with access to the real estate market through their stock portfolios. Similar to managed funds, REITs are managed and bring together the capital of a large number of investors. This makes it possible for individual investors to reap dividends from their real estate investments - without having to buy and manage any properties themselves. REITs typically invest in commercial properties such as offices and apartment buildings, shopping centres and hotels.

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