Discretionary trusts are established inter vivos i.e. before death by Deed or can come into existence after death by being created under the terms of a Will. They are used for asset protection and income streaming purposes.
There is no pro forma for a discretionary trust but they always at a minimum, invest a trustee with powers and discretions in relation to the distribution of income and capital among beneficiaries. There are numerous other features that must be decided and documented according to the particular circumstances of each person.
A trust can be created to grant to a beneficiary a “life interest” i.e. the right to receive income from a particular asset or the right to reside in a residence to a “life tenant” during their lifetime. The interest may allow the life tenant the right to request that their home he or she is permitted to occupy be sold and another in a different locality, be acquired.
Right to Reside
A “right to reside” in a home can be given to a spouse or other family member living with you to allow them to continue to reside in that home after your death not for the remainder of their life but until a date or event specified in your Will. Once the interest ceases, the residuary beneficiaries can deal with the property in such manner as they see fit.
As with a “life interest” it is important to specify in your Will who is to meet expenses such as rates, insurance, utilities, maintenance etc, i.e. the occupier or the estate.
Protective Trusts can be created inter vivos or by a Will to protect the interests of a vulnerable beneficiary, for example a person who is subject to high business risk. In those circumstances the person might be entitled to a trust asset at e.g. age 30 yrs but not if they are bankrupt or insolvent. Such trust is designed to prevent a benefit intended for a beneficiary falling into the hands of their creditors. A Discretionary Trust can also achieve much the same outcome.
Another species of Protective Trust can be used to provide how the special needs of a family member will be met into the future.
Special Disability Trust
The Federal Government provides for tax concessions where a trust is established for a person who has a special disability. That trust must have mandatory terms included in it.
These are special disability trusts, and the mandatory terms require benefits to be solely for the disabled beneficiary during their lifetime, and for prescribed purposes including accommodation and their care.
Specific Purpose Trust
You can set aside funds in a trust to be used for specific purposes, such as education or charity.
The trustee decides what distributions are made to meet the specific purpose, and terms can be set as to how the trustee makes such distributions including who can receive them.
Superannuation Proceeds Trust
So that tax benefits of superannuation can be maximised, you can provide in your Will that any superannuation benefits paid to your estate are held in a trust that only benefits people who are entitled to tax concessions, being either a spouse or dependent children.
Estate Proceeds Trust
If your Will is prepared so as to allow it, a beneficiary may elect to receive their benefit by way of a trust rather than receiving it personally. This can be useful where the beneficiary seeks to insulate the benefit from adverse (e.g. creditor or estranged partner) claims or minimise income they would otherwise generate in circumstances where the Will does not address such contingencies.