What is a Trust?

By Luke Beveridge | Property Law | Private Wealth

A trust is a separate legal entity where an arrangement is made between one party usually called ’the settlor’ grants another party ‘the trustee/s’ the authority to hold and manage assets or property for the benefit of a third party or a group of beneficiaries.

Trusts are commonly used for estate planning, asset protection, and managing the distribution of assets over time. Assets can be property, income, shareholdings and in some cases, they can be used as a legal means to move profits from one business to another entity for asset protection.

Different forms of trusts can be charitable trust, family trust, funeral trusts each with its own purposes and features. The choice of trust depends on the specific goals and circumstances of the settlor.

A settlor is the person/s who establishes the trust and transfers any assets into it. The settlor/s specify the terms and conditions of the trust in a legal document known as the ‘trust deed’ or ‘trust agreement’.

A trustee is a person or entity appointed by the settlor to manage and administer the trust according to the trust instructions. The trustee has a fiduciary duty to act in the best interests of the beneficiaries.

Beneficiaries can be either discretionary or final beneficiaries, these are individuals or entities who are designated to receive the benefits or distributions from the trust and usually include family members, friends, charities, or even the settlor themselves.

Establishing a trust may be highly beneficial for you for the following reasons:

Avoiding probate

Your assets held in a trust typically pass directly to beneficiaries without going through probate which can be extremely time consuming and costly.

Protection of Property

Once a trust has been established, you may wish to transfer your assets to the trust which you will no longer be the legal owner of. The trustees will be in control and hold them on behalf of your chosen beneficiaries. Most people delegate assets to a trust as they cannot be used to pay back personal debt if you or your business are declared bankrupt or fall into financial hardship. 

Possible Tax Efficiencies

You may wish to distribute income among the beneficiaries on lower marginal tax rates which can reduce the effective tax rate on a trust.


They can provide a higher level of privacy as the details of trust assets and distributions are not part of the public record unlike probate proceedings.

To set up a trust:

A solicitor drafts a trust deed that establishes the terms and conditions of the trust and formalises its administration.

In your trust deed you will need to decide:

-          The identity of the individuals or institutions with fiduciary duties who act as the trustees.

-          The identity of the current and remainder beneficiaries

-          Description of all assets owned by the trusts.

-          Sets the conditions under which the beneficiaries will receive income distributions from the trust.

Some potential advantages of using a trust to hold company shares can be:

Asset protection

This is beneficial when a trust is holding separate legal ownership of the shares from your personal ownership. This separation can help shield the shares from creditors or legal claims against you personally.

Estate Planning

This is valuable to specify how shares can be distributed to beneficiaries upon your passing or according to your wishes which in turns helps avoid probate and streamline the transfer of ownership.

Privacy Reasons

Trusts are not typically part of public records so details of your share ownership can remain confidential. For example, a trust may own a property but only the trustees of that trust will be shown on the record of title.

Trust Management

Trusts allow you to appoint a trustee to manage and make decisions regarding shares which is particularly useful if you want to pass on ownership to family members but still maintain control over the company or its assets.

Tax planning

Trusts do not pay tax, only people do. If you establish a trust, you may avoid paying large tax fees. If you have shares that are owned by the trust, and you are earning income from it, you may pay less tax in turn helping you better manage how much tax to pay.

Do I need to create or change my will if I establish a trust?

Establishing a trust can have a significant impact on your estate plan and it is always recommended to amend your will to suit necessary changes.

If a person dies intestate as to any real or personal estate and leaves the other person or people (such as Husband, wife, or a surviving de facto partner), that estate must be distributed in the manner or held on the trusts determined by Column 2, Section 77 of the Administration Act 1969.

If you establish a trust, it is highly recommended to update your current will or create one so your assets are appropriately dealt with, and your wishes are met.  

We have taken care to ensure that the information given is accurate, however it is intended for general guidance only and it should not be relied upon in individual cases. Professional advice should always be sought before any decision or action is taken.