In Australia, trust law is under the jurisdiction of state governments, and the legislation often interacts with Corporations law and Family tax law. Equity still regulates trust law to a significant extent, and Australian law has often followed English developments.
There are a variety of trusts recognised and used in Australia, including Unit trusts, Discretionary trusts and Hybrid trusts. Testamentary trust are also sometimes used.
Often referred to as a "family trust" in Australia, is a discretionary trust where the trustee has made a family trust election. Family trusts provide flexibility in relation to distributions of income and assets among members of the family, while at the same time permitting the family to maintain either direct or indirect control over funds or other assets that have become the property of the family members. Streaming a category of trust income to a particular beneficiary provides tax planning opportunities. For example: foreign tax credits can be best utilised by resident individual beneficiaries with high marginal tax rates and net capital gains can be best utilised by beneficiaries with carried forward losses, low income beneficiaries with carried forward revenue losses and minors able to receive excepted trust income. However, discretionary trusts are usually unsuitable for accumulation of profits as the undistributed income will generally be taxed at 45% under s99A of the ITAA36.
Family Trusts are often used to distribute income to beneficiaries in an attempt to achieve the most desirable tax outcomes available to the members of the trust. Discretionary or "Family" trusts also protect assets when individual members become insolvent or bankrupt. Asset protection also extends to other types of liabilities.
The power of appointment of the trustee of a discretionary trust is held by the Appointor.In some trust deeds the person holding the power of appointment of the trustee is called the Custodian.The only difference is in the name. The Appointor is usually a natural person but can be a company. Generally upon the death of the Appointor, in the absence of an alternate appointment in the trust deed,the personal legal representative (executor) of the Appointor becomes the Appointor.The real power in relation to the control of the trust rests with the Appointor because of the ability to terminate the appointment of the trustee and appoint a different trustee. This must be kept in mind when considering succession and estate planning involving assets held in a discretionary trust.