The basic principal of a Discretionary Trust is that a person (the settlor) transfers property to the trustee in which such property then vests.

The Trustee then holds the property upon the terms of the Trusts as defined in the Deed of Settlement for the benefit of the persons named as the beneficiaries either in the original Deed or through subsequent action. (Beneficiaries may be named in the Deed but where this is inappropriate and provided that there are the requisite terms in the Deed, persons intended to benefit may be omitted from the beneficial class but appointed later, before assets or income are to be distributed to them).

The Trustee must administer the trust property in accordance with the terms of the Deed. To attain maximum flexibility the Deed will provide for the Trustee to use its absolute discretion in the investment and application of the Trust Fund.

A principal advantage of a Discretionary Trust (e.g. with family members as eligible beneficiaries) is that it can allow taxable income to be distributed within the range of beneficiaries (ie. the family) in such a way that the overall tax burden is reduced. Where a Trust permits a discretionary division of income, income in each year can be directed to any beneficiary in any proportion. In the most tax effective approach, income will be divided so that the lowest earner and subject to the lowest marginal rates of tax in any year receives the bulk of the income.

Other advantages include:

• To protect assets as settled or accumulated in the Trust against potential and actual creditors

• To make provision for ones family without giving up control over the assets settled or accumulated in the Trust

• To protect assets against death, succession or estate duties should such duties be reintroduced by the Federal or State Governments.

• To divest oneself of assets and their income to safeguard certain social security entitlements (Warning: This must of course be arranged in a strictly legal manner).

• To pass assets from generation to generation.

• To maintain privacy. A Trust structure is not available for public inspection unlike the records of a company that can be searched through the Australian Securities & Investments Commission (A.S.I.C.). Even a Will becomes a public document when Probate is granted.

Shelfcom, through its legal counsel, is able to establish Discretionary Trusts on behalf of clients at a cost of $477.00 (which includes Stamp Duty and GST). This amount covers one original and one stamped and executed Deed of Settlement.