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Family Trust vs Discretionary Trust Explained

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Understanding the Difference Between a Family Trust and a Discretionary Trust

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What a Trust Is

A trust is a legal structure. A trustee holds assets for beneficiaries. The trust deed controls how the trust works. The appointor controls who the trustee is. The beneficiaries receive income or capital. The trust separates legal ownership from beneficial ownership.

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What a Discretionary Trust Is

A discretionary trust gives the trustee full choice about who receives income or capital. Beneficiaries do not have fixed rights. The trustee distributes income each year. The trustee decides the share each person receives. This structure provides flexibility for tax planning and family needs.

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What a Family Trust Is

A family trust is a type of discretionary trust. It is set up to benefit one family group. The beneficiaries are usually parents, children, grandchildren and related entities. A family trust often involves a family trust election. This election locks in the family group for tax purposes. Many people use the terms family trust and discretionary trust to describe the same structure.

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Key Roles in a Trust

Settlor
Creates the trust. Provides the initial sum. Has no further role.

Trustee
Legally owns the trust assets. Makes decisions. Distributes income. Must act in the best interests of beneficiaries.

Appointor
Holds the power to remove or replace the trustee. This is the true control position.

Beneficiaries
Receive income or capital. Do not hold legal ownership.

Trust Deed
Defines the rules. Sets out powers. Lists the beneficiary class. Defines how income is distributed.

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Benefits of Using a Discretionary or Family Trust

Flexible distributions
You direct income to beneficiaries with lower tax rates.

Asset protection
Beneficiaries do not own trust assets in their personal name.

Tax planning
The structure supports tax effective strategies for families and business owners.

Succession planning
The trust can continue from one generation to the next.

Capital gains planning
The structure helps with managing capital gains across beneficiaries.

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Disadvantages to Consider

Setup costs and ongoing costs apply.
Trustees hold legal risk and responsibility.
The trust cannot easily retain profits.
Losses are restricted.
Record keeping must be accurate.
Annual distribution resolutions must be completed on time.

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When a Trust Works Well

When you own a family business.
When family members have different tax brackets.
When you hold investments and want distribution flexibility.
When you need asset protection.
When you plan long term family succession.

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When a Trust May Not Suit You

If you want to retain profits inside the entity.
If you need external investors.
If you want fixed entitlements.
If your structure is simple and you want low administration.
If the trust deed is complex and unnecessary for your needs.

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Trusts Compared to Companies and Unit Trusts

A company retains profits and pays company tax rates.
A unit trust gives beneficiaries fixed entitlements.
A discretionary or family trust gives beneficiaries no fixed rights.
Each structure suits different goals. The right choice depends on your tax needs, control needs and future plans.

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How Trinity Accounting Practice Helps You

We review trust deeds and confirm if your structure is correct.
We advise on trustee, appointor and beneficiary roles.
We set up family trusts and discretionary trusts.
We guide you on tax effective distribution planning.
We prepare trust tax returns and trustee resolutions.
We advise on long term asset and succession planning.
We help you align your trust with your business or investment goals.

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What You Should Bring to Your Meeting

Your trust deed.
Last two or three trust tax returns.
List of beneficiaries.
Business or investment plans.
Any concerns about tax, risk or distributions.

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Next Steps

Book a meeting with Trinity Accounting Practice.
We will review your structure.
We will map your best option.
We will simplify the legal and tax process for you.

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Contact Trinity Accounting Practice in Beverly Hills, NSW, for specialist cash flow forecasting, reporting, Xero advisory, and business growth support:

💡 Accounting Firm in Beverly Hills
📞 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 After hours and weekend appointments available
📅 Book online: https://calendly.com/ramy-hanna

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🌐 Our Virtual CFO division, VCFO Australia, provides strategic financial management, budgeting,forecasting, and compliance support for growing businesses andnot-for-profits: https://www.vcfoaus.au/

📌 Learn more about whatwe offer:
https://www.trinitygroup.com.au/services

📌 Discover the industries we specialise in:
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📌 Read more tax and accounting tips on our blog:
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https://nexuswealth.au/

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Our Best Blogs and links

https://www.trinitygroup.com.au/accounting-for-tradies-sydney

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