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There's a lot to think about when it comes to managing your discretionary trust fund. You'll want to make sure your assets are protected, but you also want peace of mind that your capital can be distributed fairly. A discretionary trust deed template can be the starting point for creating a document that ensures everyone's on the same page.
Use this guide to find a discretionary trust deed template and learn what to include in your agreement.
What's in this guide?
- What is a discretionary trust deed?
- Get a discretionary trust deed template
- More on where to find templates like a discretionary trust deed
- When should I use a discretionary trust deed?
- What does a discretionary trust deed include and not include?
- How effective is a discretionary trust deed?
- Discretionary trust deed vs Discretionary family trust
- 3 quick tips to write to your discretionary trust deed
What is a discretionary trust deed?
A discretionary trust deed is a legal arrangement that sets out the terms of the transfer of assets between an individual (trustee) and any beneficiaries. The trustee can distribute the income and capital of the trust as they want to, but they are required to comply with the specific terms of the trust.
The settlor chooses who will benefit from the funds of a trust. This can either be a named individual or a group of people. The capital remains within the trust until the trustee decides to use their discretionary power to distribute the funds to all the beneficiaries.
Get a discretionary trust deed template
Download this template at Lawpath
More on where to find templates like a discretionary trust deed
Thankfully the Internet makes life easier with an abundance of websites providing legal documents and templates. There are a number of free templates available that you can use to write your discretionary trust deed. Here are a few options:
- LawPath. A legal software platform, Lawpath has a customisable Discretionary Trust Deed template which is free when you first sign up.
- LawLive. This platform has Discretionary (Family) Trust Deed templates available that you can build, preview and purchase from the website.
- LawDepot. If you're looking for a free Last Will and Testament template, you can create your document through LawDepot.
- Legal Docs. As well as providing legal documents to order, Legal Docs has individual and corporate Discretionary Trust samples available to view.
- Precedents Online. This Australian site provides online legal documents, including a Discretionary Family Trust Deed.
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When should I use a discretionary trust deed?
A discretionary trust is useful in a few different situations. These include as follows:
- To distribute an individual's wealth between groups of beneficiaries after his or her death.
- When a beneficiary cannot manage their own financial assets or is financially unstable.
- Tax efficiency and savings.
- Safeguarding money from a beneficiary who is going through a divorce or bankruptcy settlement, since these funds cannot be treated as their belonging.
- To offer protection from creditors or a safer option for vulnerable clients subject to exploitation.
What does a discretionary trust deed include and not include?
The discretionary trust deed must address each aspect of the trust between the trustee (or trustees, if more than one) and the beneficiaries, who need to be at least two.
When writing and signing a discretionary trust deed, you must ensure that it includes all the relevant details about the following:
- Capital and income. The trustee has powers over the income and capital and can manage the reduction of income and capital to all the entitled beneficiaries. The deed must set the powers of the trustee and how they can exercise them.
- Beneficiaries. The beneficiaries are those who are entitled to benefit from the trust. The deed must outline who can benefit from the trust, although the distribution of the capital is at the trustee's discretion.
- Personal interests and liabilities. The deed must specify what happens if the trustee has a personal interest and whether they are required to disclose it. This is essential to set the boundaries for the liability of the trust.
- Financial issues. Every financial year, the trustee needs to determine which beneficiaries will receive a distribution of income from the capital. The deed should outline the remuneration that the trustee will receive for looking after the trust, and any reimbursements of costs and expenses associated with this responsibility (such as taxes and outgoings).
- Appointment and removal. The deed must state what happens if the trustee is no longer suitable or unable to fill their role. The document must address the appointment and removal processes of a trustee.
Typically not included
When stating the terms of the trust, the parties can decide what to include in the document. A Letter of Wishes can be excluded from the deed if it's established to manage an asset following the death of the trustee. A Letter of Wishes is a document that sets out guidelines on how you wish your estate to be executed and is not legally binding.
How effective is a discretionary trust deed?
With a discretionary trust deed, you can protect your assets, reduce your capital gains tax and have flexibility in how you distribute your income and capital. The deed is highly effective because it is a signed agreement between the trustees and is executed according to state or territory laws.
Once your discretionary trust is signed, your assets are protected from creditors in the case of bankruptcy or liquidation. It also allows individuals to receive a 50% Capital Gains Tax exemption. Check out our free capital gains tax calculator here.
For a family trust, the deed gives you the flexibility to plan your estate effectively for the family in the event of an unexpected death.
Discretionary trust deed vs Discretionary family trust
The discretionary trust deed can be signed by different parties, and the trustee can be either an individual or a company. The deed can appoint one or more trustees to manage the assets for a number of beneficiaries, chosen by the parties.
A discretionary family trust is specifically established for a family. An amount of money, the "settled sum", is held in trust in accordance with the deed for the beneficiaries, who are all family members or related to the same family.
3 quick tips to write to your discretionary trust deed
- Select a trustee. Before you start your draft, you'll need to select a trustee to manage your discretionary trust. This can be an individual, a group of individuals or a private proprietary limited company.
- Write your deed. Your next step is to draft the deed with the aid of a legal professional. Alternatively, you could download a template from a platform like Lawpath, but you will still need to customise it according to your situation and we advise seeking legal assistance to do this.
- Settle the deed. Once your document is written up, you'll need to elect a settler to sign the trust deed and give an initial settlement sum. The settler must not be a beneficiary of the trust and must not be related to any of the beneficiaries.
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