Tag: Hybrid trust

What is a hybrid trust?

hybrid watermelon

Hybrid discretionary trusts can be hybrid discretionary or hybrid unit trusts.  The former are the more common and take the best features of both discretionary and unit trusts and mixes them together in the one entity to create a powerful and flexible tax planning solution.

They are typically used to gear into property where an individual will borrow to purchase the units in the trust (usually using the property purchases by the trust as security) and then, when the property is no longer geared, the trust can repurchase the units (often borrowing money to do so).

Care needs to be taken when establish such a structure as not all trust deeds are adequate to allow the individual to claim the tax deduction for the interest expense on the loan.

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What are the types of trusts?

trust

There are four main types of trusts:

Testamentary trusts are formed upon the death of a person who has specified its creation in a will.  These are not discussed here but if you have any questions feel free to chat below using our live chat tools.

Note that Centrelink may include the income and assets of a trust when working out your social security payments if you are considered to be a controller of a trust.  Further information can be found at the Centrelink website.


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What is a trust?

trust

Trusts are a useful investment structure, but are often not fully understood.

Briefly, the trust is formed by executing a deed which documents the establishment of the trust.

The trustee determines to whom and in what proportion the income/assets of the trust are distributed.

The appointor (usually the person establishing the trust) has the discretionary power under the trust deed to remove and replace the trustee.  The appointor has the power to nominate a successor on his or her death and failing any such appointment, the personal representative of the appointor will become the new appointor.

The specified beneficiary are usually the husband and wife or partner and so by definition the range of beneficiaries include any children and any related entities (any companies of the which the specified beneficiaries are directors or shareholders).

A trust can distribute income and capital gains in accordance with the trust deed, however, it cannot distribute losses.  Losses can be carried forward to be offset against future income.  A trust can also retain income, and if that income is taxable, then tax is payable at the top marginal rate plus the Medicare levy.

There are four main types of trusts:

  • Discretionary
  • Unit
  • Hybrid
  • Superannuation funds

Testamentary trusts which are formed upon the death of a person who has specified its creation in a will are discussed in Estate planning.

Note that Centrelink may include the income and assets of a trust when working out your social security payments if you are considered to be a controller of a trust.  Further information can be found at the Centrelink website.

Below is our video tutorial on who to appoint as the trustee of your trust:

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