Trusts are a popular structure for managing assets and income. A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries. There are different types of trusts, and each type has different taxation implications.

1. Discretionary Trusts: Discretionary trusts are a popular type of trust. In a discretionary trust, the trustee has the discretion to distribute income and capital to the beneficiaries. This type of trust is often used for estate planning, asset protection, and tax planning purposes. Income distributed to beneficiaries is taxed at their marginal tax rate, which can be beneficial if beneficiaries have a lower tax rate than the trustee.
2. Unit Trusts: A unit trust is a trust where the beneficiaries hold units, similar to shares in a company. The trustee manages the trust and distributes income to the unit holders according to the number of units they hold. Unit trusts are commonly used for property and investment trusts. Income distributed to unit holders is taxed at their marginal tax rate.
3. Hybrid Trusts: Hybrid trusts combine the features of both discretionary and unit trusts. The trustee has the discretion to distribute income and capital to the beneficiaries, and beneficiaries also hold units in the trust. This type of trust is often used for investment purposes.
4. Testamentary Trusts: A testamentary trust is created through a will and comes into effect after the testator’s death. This type of trust is often used for estate planning purposes and can provide asset protection and tax benefits for beneficiaries. Income distributed to beneficiaries is taxed at their marginal tax rate.

The taxation implications of trusts can be complex, and it’s important to ensure that trusts are set up correctly and comply with tax laws and regulations. If you need to set up a trust, please contract our office at 03 9973 5905.