Trust

Question 1

What is the definition of a trust

Who has legal ownership of the assets and who has benefitial ownership of the asset

Answer 1

A trust is an equitable obligation under which a person (the turstee) holds property (trust property) for the benefits of one or more persons (the “ beneficiaries ).

The trustee has legal ownership of the asset
The beneficiary has beneficial ownership of the assets

Question 2

What are the two broad categories of trusts and for who are these trusts created

Answer 2

Private trusts fro the benefit of an individual or group of individuals

Public trusts for charitable purposes

Question 3

How are trusts distinguished according to their mode of creation

Answer 3

Express trust: arise where there is an express (specific) intention to create a trust

Implied and constructive trust: arise where there is no express declaration of trust, but it is appropriate that a trust be implied or contrused. When an individual passes away there estate is in an implied trust

Question 4

Explain the two type of express trusts

Answer 4

Fixed trust

A fixed trust is a trust which the beneficiaries entitlement to income and capital are fixed. In a fixed trust the beneficiaries income and entitlement are going to be fixed by the trust deeds.
A beneficiary of a fixed trust has an equitable interest in the property that is held on trust (Baker v Archer-shee Charles)

Discretionary Trust

A discretionary trust is a trust which the trustee has a discretion as to how to distribute the trust income and capital 
Trustee selects from a class of "objects" (potential beneficiaries), the person who are to receive particular benefits under the trust 
Until such time, the beneficiary's interest in the trust income and capital is a mere expectancy ( Gartside )

Question 5

Who are taxed in a trust

How is the treatment of tax loss different within the

Are taxes a separate legal entity and are they a “flow-through” entity

Answer 5

Trust income is taxed in the hands of either the trustee or the beneficiaries of the estate

Tax losses do not flow through to beneficiaries, this is different to partnerships where the losses are passed onto the partners

Not a separate legal entity, trusts are ‘flow-through’ entity

Question 6

What are the two main roles of Div 6 of part III ITAA36

What is necessary to determine

Answer 6

Div 6 of Part III ITAA36 has two main roles:
o To calculate the “net income” of a trust estate
o To determine who is assessed on the net income of the trust estate

Necessary to determine whether:

• Beneficiary is “presently entitled” to a share of the “income” of the trust estate
• Beneficiary is under a “legal disability”

Question 7

What is the definition of legal disability

Give some examples of legal disability

Who gets assessed in in the case of a legal disability

Answer 7

Beneficiaries that are unable to give a valid discharge for payment made to them by trustee are under a legal disability

Examples:

• Bankrupts
• Minors
• Insane

In this case the the assessment fall to the trustee rather than the beneficiary

Question 8

What is meant by the term present entitlement.

For a beneficiary to be presently entitled to income of trust estate if the

Answer 8

If they have a legal right to the income of the trust then the beneficiary is considered to be presently entitled.