What is a Class Discretionary Trust used for?
A Class Discretionary Trust is best suited where a shorter term project is to be undertaken between people who have a stable and harmonious relationship. The trustee is obliged to divide the income and capital of the trust between groups of beneficiaries in fixed ratios. However, within each group, the trustee has total discretion to make a distribution to any one or more of the beneficiaries in that group. There can be any number of groups of beneficiaries.
The use of this structure becomes very cost effective if the parties do not already operate through discretionary trusts.
There are three parties who must be identified when preparing the documentation for a class discretionary trust. All of these parties must be legal entities. A legal entity may be one or more individuals, a company or an incorporated association. The individuals must be over the age of 18 years, not bankrupt nor subject to any other legal or mental disability (other than for beneficiaries).
- The settlor, whose role is to:
- invite a person to act as the first trustee
- settle some property on the trust
- determine the terms of the trust deed.
- The trustee, whose role is to:
- hold the assets of the trust in its name
- administer the trust, investing the trust funds and keeping its records
- distribute trust income and capital to the beneficiaries.
- The beneficiaries – beneficiaries don’t perform any function in a trust but must be clearly identified either by name or by relationship to at least one named individual. With this type of deed, it is necessary to name at least one beneficiary in each group.
An optional role is that of the appointor who, if the role is filled, has the power to remove and appoint the trustee and whose consent is a necessary pre-requisite to any changes to be made to the trust deed. As this is such a pivotal role, we recommend that the deed provides for a succession plan to cater for unforeseen circumstances. With this type of deed, it is important to have an appointor from each group of beneficiaries.
The trust deed sets out the terms of the relationship between the trustee, the beneficiaries and, if the role is filled, the appointor. It can be used to dictate a variety of procedures or mechanisms in terms of the discharge of the trustee’s duty to the beneficiaries.
How to order a Class Discretionary Trust
If you would like to order a class discretionary trust, please email us or give us a call on 03 9898 6666 and we’ll be happy to help.