Untitled Flashcards Set

Trust:

• A legal obligation, or equitable device imposed on a person to hold property for the benefit of others

• A relationship between parties and not a separate legal entity

• Treated a taxpayer entities

• Cannot exists beyond 80 years

• Trust no longer exists after all requirements have been carried out

• Created via a trust deed = must be in writing

Settlor:

• The party who creates the trust via a trust deed and places the trust property into the trust

• Might be an individual in their capacity as a private person

• Once the trust is established, the settlor's role ends

Trustee:

• The party under the trust deed who holds the trust property and deals with in on behalf of the beneficiaries

• Must follow the instructions in the deed

• Might be a natural person/s or a body corporate

• Corporate trustee = company that is under the trust

• The legal owner of the trust property = cannot use as if it were their own

• Not a separate legal entity

• Obligations set out in the trust deed as well as Trustee Act 1958 (vic)

• Responsible for managing the Trust's tax affairs

• Personally liable for the debts of the trust

Duties:

• Being familiar with the terms of the trust

• Preserving the trust property and deal with it according to the trust deed

• Following the terms of the trust deed

• Acting impartially

• Acting only for the beneficiaries' interests

• Not making any personal profit

Rights:

• Obtaining indemnity and reimbursement from the trust for all expenses incurred in connection with the trust

• Having trust accounts examined or audited by a public accountant

• Obtaining personal protection from litigation for a breach of their duties when acting in accordance with a court's direction

Liability:

• Usually fall on the trustee personally as a trust is not a separate legal entity

• Can escape liability by asking for compensation from the trust property for the liabilities incurred

Power:

• Must act in good faith and exercise their lawful power and preserve trust property

Administrative issues:

• Appointment of original and new trustees

• Retirement of trustee

• Death of sole trustee

• Removal of a trustee

• Replacement of a trustee

Beneficiaries:

• The person/s on whose behalf and for whose benefit, the trust property is held

• Beneficial interest in the trust property

• Entitlement to trust income or capital, or they may acquire an entitlement because the trustee exercises a discretion to pay them income

Fixed trusts and discretionary trust:

• Express trusts because they are established from the settlor's express intentions and are set out in writing in a trust deed

Fixed trust:

• Fixed amount each beneficiary will receive

• Beneficiary knows what they will receive

• Unit trust is a type of fixed trust

• The right to sue if the trustee for any loss for breaching their duties or the loss of trust property

Discretionary trust:

• Gives the trustee discretion as to how the trust is distributed to the beneficiaries

• May not receive anything under the trust as they have a mere expectancy to the property

• Can be used for asset-protection, income streaming for tax purposes, and permit superannuants to manage the amount which they contribute

Trading trust:

• A trust which operates a business

• Carried on a business on behalf of the beneficiaries

• Usually a proprietary limited company with a very small amount of capital

Advantages:

• Trust can be used to minimise income tax

• Trusts can also be used for asset protection and for superannuation

• Does not need to be registered or comply with legal various formalities

Disadvantages:

• The cost of establishing and operating the trust can be expensive

• Cost of continuing requirements and dismantling the trust

• Not separate legal entities and trustees do not have the benefit of limited liability from the trust's debts

Business names:

• Every adult is entitled to trade under their own name

• Must register with ASIC if is not trading their own name --> must check to ensure name is not already used

• Trusts, joint ventures and companies must register their names

• ASIC maintains the business Names Register --> records the business name and details of the business trading under that name

• Prevent people from hiding behind business that have no association with their own name

• A fee is payable to ASIC which lasts for either 1 or 3 years depend on the period business chooses

Rules:

• Should be displayed at the registered place of business

• Displayed at the front of the house for home-based businesses

• Business names and ABN should be used on stationary, invoices

• Does not provide exclusive rights to the name

Business name cannot be:

• Identical to an existing name

• Be subject of an earlier application

• Be undesirable

• Suggest a misleading association

• Be prohibited/restricted by specific legislation