Roles within a private trust 043-04020070

If a customer states that they have resigned as appointor, establish in what other ways they remain involved in the trust.

For example, they may still be included among the categories of beneficiaries, may still be a creditor, and still expect the newly appointed appointor, an associate, to act in accordance with their own wishes.

If a Complex Assessment Officer (CAO) has previously determined that a customer has made a genuine relinquishment of control from this trust, an assessment of the trust may not be required at this stage.

A settlor or creator generally contributes an amount (usually a nominal amount of $10-$50) to start the trust. The settlor may have no further involvement in the trust after it is set up.

Trusts may be established in a will after death. The maker of a will is called a 'testator'. A will is the document which describes how the person wishes their property to be distributed after their death. A will does not operate until the testator's death, and, as it is merely a declaration made during the testator's lifetime, it can freely be revoked or altered by the testator.

Depending on the extent of the contribution made, and the relationship of the contributor to the appointor(s) and trustee(s), this customer may be able to influence decisions made by the latter or expect the latter to act in accordance with their wishes.

A customer who contributes capital to a trust:

• and is owed money in return, by way of a loan, is referred to as a creditor
• in return for equity, is referred to as a unit holder
• as a gift is referred to as a contributor

The first two may also be referred to as 'contributors'. A customer may also be considered a contributor if they contribute services to a trust.

Depending on the extent of the contribution made, and the relationship of the contributor to the appointor(s) and trustee(s), this customer may be able to influence decisions made by the latter or expect the latter to act in accordance with their wishes.

This customer often has the power to appoint or dismiss the trustee, veto the trustee's decisions or vary the trust deed.

Having these powers means the appointor, principal or guardian, may be able to influence decisions made by the trustees of the trust.

The customer who is named in a will as having the responsibility of dealing with the property of a deceased estate in accordance with the wishes of the testator is called the 'executor'. Where the deceased person did not make a will (i.e. died intestate) or did not name an executor in their will, the Court will appoint someone to deal with the property of the estate. This position is called an 'administrator'.

The office of executorship is an office of trust in that the executor holds legal title to the property which is to be administered for the benefit of others.

The roles of executor and trustee are two different jobs. The executor's role comes to an end when they have realised the assets of the estate, paid any debts and distributed the balance to the beneficiaries.

Where the terms of the will create a continuing duty, this role is performed by the trustee, for example, when the will specifies that the property is to be held for the benefit of one customer for life, and distributed to the others after that person's death.

The trustee holds trust property for the benefit of the beneficiaries in accordance with the trust document. The trustee may be an individual or a private company. Where a private company acts as the trustee, the private company is referred to as the 'corporate trustee'.

Note: it is possible for a corporate trustee to trade or hold assets on its own behalf, in addition to its role as a trustee. If the corporate trustee trades or holds assets in its own right, the customer must be asked to provide separate financial statements for these activities. For further information, refer to Companies.

A customer may become a director:

• when the trustee company is first set up
• by being appointed by another director
• by being appointed by a vote of shareholders of the trustee company

Written consent is required for each customer who agrees to become a director of the trustee company. A director must be a customer over the age of 18 years.

The directors of the trustee company make decisions on the management and running of the trust, including whether or not a distribution will be allocated in a particular financial year. In a discretionary trust they may also have the power to determine who will receive a distribution and how much.

A customer may become a shareholder of the corporate trustee in a number of ways including:

• by purchasing shares
• having shares transferred to them by way of a gift from an associate
• receiving shares as an inheritance from a deceased estate

The customer whose name appears on the share certificate is the legal holder of the share. This customer may not necessarily be the beneficial owner of that share, as they may hold the share on behalf of another party. Both parties may be considered to have an involvement in the company, one by virtue of their beneficial interest in the share and the other by virtue of their association with the first customer. If the share provides voting rights, the legal holder of the share may vote as instructed by the beneficial owner or may have the power to vote independently.

A shareholder may be entitled to vote and have a say in decisions concerning the trust, such as the appointment of directors. If a customer, or members of a couple, hold(s) the majority of shares with voting rights, they can influence the outcome of decisions made by members (shareholders of the company, for example, the appointment of directors).

A public officer will only be appointed for a trust if there are no Australian resident trustees. If appointed, the public officer for a trust is responsible for the company's tax related issues.

A beneficiary is a person or entity that is capable of receiving a benefit from the trust, either by way of income or capital distributions. In a discretionary trust a beneficiary may only receive a distribution of income or capital at the discretion of the trustee.

A beneficiary of a 'family trust' will often be referred to as a beneficiary whereas a beneficiary of a 'unit trust' will generally be referred to as a unit holder. The terms 'family trust' and 'unit trust' may be included in the name of a trust but are not relevant to the determination of the type of trust in which the customer is involved.

A trust deed will state who is included among the beneficiaries. This document may state the name of the person or entity that is a beneficiary and/or may only refer to a beneficiary by category. For example, beneficiaries may be referred to as 'children, grandchildren, partners, aunts, uncles'.

A customer may not know that they are included among the categories of beneficiary of a private trust if they are only mentioned as a beneficiary by category and have never been allocated any benefit by the trust.

Once a beneficiary has been allocated a trust distribution, the customer will be aware they are a beneficiary. The beneficiary needs to be informed of the distribution as it will generally be regarded as taxable income.

Beneficiaries, in general, do not have voting rights and therefore have no say in decisions made by the trustee. However, a beneficiary may be an associate of the trustee and as such have the ability to influence decisions made by the trustee.

An associate is a customer(s) or entity(ies) who could be expected to act in accordance with the individual's or couple's wishes.

A customer may exert informal control over a trust even though they are not an appointor or trustee.

For example, an accountant, solicitor or other professional may be acting under instructions from our customer. Family members may be following the directions of a customer or be influenced by a customer's wishes.

A customer may hold units in a discretionary private trust (e.g. hybrid trust) or a fixed private trust. A unit holder of a discretionary private trust may have a fixed interest with respect to the income of the trust but not with respect to capital, or vice versa and may or may not have voting rights. A unit holder of a fixed private trust has a fixed interest with respect to both the income and capital of the trust but may still not have voting rights.

A customer may become a unit holder in a number of ways including:

• by purchasing units
• having units transferred to them by way of gift from an associate
• receiving units as an inheritance from a deceased estate

The customer whose name appears on the unit certificate is the legal holder of the unit. This customer may not necessarily be the customer with a beneficial interest in that unit. They may hold the unit on behalf of another party.

Both parties may be considered to have an involvement in the trust, one by virtue of their beneficial interest in the unit and the other by virtue of their association with the first customer. If the unit provides voting rights, the legal holder of the unit may vote as instructed by the beneficial owner or may have the power to vote independently.

A unit holder may be entitled to a share of that trust's profits, paid in the form of distributions. They may be entitled to participate in the capital of the trust when the trust is wound up. They may also be entitled to vote and have a say in decisions concerning the trust, such as the appointment of trustees.

The trust deed will indicate the rights and interest of unit holders. Units may be of different types. For example, 'A class' units may provide voting rights but no interest in the income or capital of the trust. 'B class' units might provide a fixed interest in the income and capital of the trust but no voting rights.

If a customer, or members of a couple, hold(s) the majority of units with voting rights, they may be able to influence the outcome of decisions made by the trustees.

A unit holder may have purchased their units in a trust at 'par value', a minimal amount such as $1 or $2, or at a value reflective of the current market value, 'net asset backing' value of units, or at a 'premium'.

Unit holders who obtained their units in return for a contribution of capital that is representative of the current market value of the units may, in limited circumstances, be considered 'genuine investors' if they also meet the additional criteria outlined in chapter 4.12.6 of the Guide. See the References page which contains links to the Guide.