For the purposes of FA, a trust is an arrangement in which an individual transfers property to one or more trustees, who hold it for the benefit of one or more persons who are entitled to enforce the trust, if necessary by action in court.
Categories of trusts
There are 2 categories of trusts:
- statutory trusts, and
- non-statutory trusts.
- are created by law,
- are usually established to look after the affairs of beneficiaries of the trust who may be incapable, or legally unable to attend to their own affairs, and
- exist if property is held by:
- public trustees,
- Workers Compensation Boards, and
Explanation: Although the description of 'statutory trust' is applied, a trust in the strictest sense is not created. The Federal Court, in Flannery v Secretary of the Department of Social Security, has recognised that public trustees and similar bodies are managers rather than trustees of property.
The following table lists the different types of non-statutory trusts.
|If a trust…||Then it is…|
|is established with a written trust deed,
Explanation: Trust deeds do not vary the property rights of the parties to the trust until they come into effect.
Example: Family trusts.
|does not have a trust deed, but a court decides that it exists,||
Ownership of non-statutory trusts
When a non-statutory trust is established the trustee becomes the legal owner of the assets held in trust, however, they are not entitled to use the assets or income for personal benefit. A trustee is bound to act in accordance with the terms that are expressed in the trust deed.
The beneficial ownership of the assets rests with the beneficiaries of the trust.
The majority of non-statutory trusts are expressed in a trust deed which contains the:
- identity of the trustee/s,
- identity of the beneficiaries, and
- nature of the trust.