This is a kind of hybrid trust. It is similar to a discretionary trust except that the trust deed provides that the income and capital must be distributed between certain classes of beneficiaries in the proportions set out in the trust deed. Each class is usually a discrete family group.
In some class trusts, each class may own separate units in the trust, with those units giving each class of discretionary beneficiaries a fixed proportion of the income and/or capital of the trust. Each classes of discretionary beneficiaries a fixed proportion of the income and/or capital of the trust. Each class of discretionary beneficiaries would be related to a particular unit holder (and the discretionary beneficiaries in each class would be essentially the same as those found in any ordinary discretionary trust).
After the income has been distributed to the classes in the set proportions, it can then be distributed on a discretionary basis among the individual beneficiaries in each class.
Note that the same result could also e achieved by defining each class with reference to units in the trust, provided the trust deed was drafted appropriately.
- There is only one entity, rather than multiple entities as there is with a partnership of discretionary trusts or a unit trust in which the units are owned by discretionary trusts.
- Independent parties are comfortable knowing that they have a set proportion of the income, capital and voting rights in the trust.
- If the class trust involves ownership of units, each party may have an interest which can be easily sold or otherwise disposed.
- The income is distributed on a discretionary basis among each unit holder’s family including companies and trusts.
- Tax free income can be distributed among the discretionary beneficiaries without GST event E4 happening (as each beneficiary’s interest in the relevant class is discretionary).
- There is asset protection if an individual discretionary beneficiary goes bankrupt, as that individual has no interest in the assets of the hybrid trust, i.e. the individual is merely a discretionary beneficiary (but refer to the discussion on Richstar).
- If the class trust involves ownership of units, it may be possible to introduce new partners relatively easily.
- The flexibility and tax effectiveness of the discretionary trust is obtained with the security of a unit trust.
If you would like more information on trust structures and the most appropriate for your situation, please click here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.