Types of Trusts That Can Help Protect Your Assets

Protecting your assets is crucial to ensuring long-term stability and wealth management. Whether planning for retirement, passing on wealth to future generations, or simply looking to safeguard your financial legacy, setting up a trust can be a powerful tool to protect your assets and ensure they are distributed according to your wishes. Our experienced Sydney and NSW estate planning lawyers at Szabo & Associates Solicitors can help you understand the various types of trusts so you can make informed decisions about protecting your wealth and legacy.

What is a Trust?

A trust is a legal arrangement where a trustee holds and manages assets on behalf of a beneficiary. Trusts provide a flexible way to manage wealth, offer tax advantages, and protect assets from potential risks such as creditors, legal claims, or mismanagement by beneficiaries. Here are the most common types of trusts in NSW that can help protect your assets.

Discretionary Trusts

In a discretionary trust, the trustee can determine how the trust’s income and capital are distributed among the beneficiaries. The beneficiaries do not have fixed entitlements, which offer a level of asset protection. Key benefits include:

• Asset protection: Because beneficiaries do not have direct claims to the trust assets, they are less vulnerable to creditor claims or legal disputes.
• Tax efficiency: Trustees can distribute income to minimise the overall tax burden by utilising lower tax brackets among beneficiaries.
• Flexibility: The trustee is free to distribute income or assets according to beneficiaries’ needs or changing circumstances.

Families commonly use discretionary trusts to protect wealth while ensuring flexibility in managing and distributing assets.

Testamentary Trusts

A testamentary trust is established through a will and comes into effect upon the testator’s death. It allows for the distribution of assets to beneficiaries according to the terms set out in the will. Key benefits include:

• Control over asset distribution: Testamentary trusts allow the testator to manage how and when beneficiaries receive their inheritance, which can be particularly helpful in providing for minors or financially inexperienced beneficiaries.
• Tax benefits: Beneficiaries can take advantage of tax concessions by splitting income with their children or other family members, reducing the overall tax liability.
• Asset protection: In some cases, assets held in a testamentary trust may be protected from creditors or family law claims.

This type of trust is ideal for estate planning, allowing you to maintain control over the distribution of your wealth while protecting it from risks.

Unit Trusts

A unit trust is a structure commonly used for business ventures or property investments. In this trust, beneficiaries, called unitholders, hold specific units representing their proportionate share of the trust’s assets. Key benefits include:

• Defined ownership: Each unitholder has a fixed interest in the trust, making it ideal for joint business ventures or property investments where parties want clear ownership rights.
• Asset protection for business ventures: A unit trust can keep personal assets separate from business liabilities.
• Investment flexibility: Unit trusts allow multiple investors to pool their resources while maintaining individual shares of the trust.

Unitholders often use unit trusts to protect personal assets from potential business risks in commercial settings.

Consult with Szabo & Associates to Protect Your Assets

Trusts are versatile legal structures that can provide effective asset protection, tax benefits, and control over managing and distributing your wealth. Whatever your estate planning goal, there is likely a trust that suits your needs. Contact Szabo & Associates today to schedule a consultation with a qualified estate planning solicitor to discuss your unique circumstances and determine the most suitable trust structure for your needs.