Legal Tip 212: The 4 Essentials for a Trust

Discussion in 'Legal Issues' started by Terry_w, 14th Jun, 2019.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A trust is not a legal person or a legal entity but is a relationship between at least 2 persons with obligations over property. A company is a legal person, given birth to by the Corporations act. A Trust is a relationship in equity that arises because of circumstances.

    For a trust to ‘exist’ there are 4 things that are needed

    A. A Trustee

    The trustee is the legal owner of the trust assets and there must be at least one trustee. This could be a natural person or a company (which is a legal person), or both.


    B. The Trust Property

    A trustee has to hold something for there to be a trust. Trusts often start off with just $10 in property as this is the easiest way for the property requirement to be met.


    C. The Beneficiary or Beneficiaries

    The trustee needs to be holding property for someone else. There may be one beneficiary or many, but there must be at least 1 for a trust to exist. A trustee can be a beneficiary, but it couldn’t be the sole beneficiary as it is impossible to hold property for yourself.

    There is a slight difference for charitable trusts though as the beneficiaries are not necessarily persons but are charitable purposes. However there still must be person(s) who will benefit from the trust.


    D. A Personal Obligation attached to the Property

    The trustee needs to have a personal obligation over dealing with the property for the benefit of the beneficiaries. It is an equitable obligation and it is annexed to the property being held on trust. A beneficiary can sue a trustee where these obligations are breached.


    All of these are needed for a trust set up by deed (an express trust) or a trust arising due to the circumstances (an implied trust).
     
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