B Invested



When it comes to structuring your property portfolio, trusts can be complicated and sometimes difficult to understand.


While trusts can offer significant asset protection and tax efficiency benefits – they can also have tax disadvantages.


Trusts don’t always benefit investors, especially those just starting out.


Here is a quick go-to guide on the different types of trusts to help you get your head around the idea before consulting your financial advisers.






The trustee manages the daily operations of the trust. A trustee can be one or more people or a company. In the case of a company, the director would maintain control of operations.



You would think that the trustee is therefore in charge, but actually, the appointer has the power to appoint or sack a trustee.



To set up the trust, a settler must gift a settled sum. The settler cannot be a beneficiary of the trust. Usually, people get their accountants to take on the role of settler.



These are the people who the trust is set up to benefit. They can be individuals, such as family members in a discretionary trust, or companies.



The most common types of trust structures used in property investing are:

  • Unit trusts
  • Family discretionary trusts
  • Hybrid trusts
  • Self-managed super funds (SMSFs).

Lets go into more detail about these.



Under a unit trust, assets are divided into ‘units’. Each beneficiary owns a certain number of units as set out in the trust’s deed.


This is similar to the way shareholders hold shares in a company.


Each beneficiary’s share of income is proportional to the number of units they hold. The same applies for tax liabilities and related expenses.


Units can be allocated as either capital or income units.


Each beneficiary has complete discretion when it comes to leaving their share of the trust to others on their passing. This is set out in the beneficiary’s Will.


If a beneficiary wants to buy more units within the trust using a loan, they can generally claim deductions on any interest payable.


Individuals can’t claim deductions against interest paid on borrowed money that they put into the trust to purchase assets.


Instead, the trust entity can claim against the interest.




Commonly known as a family trust, this type of structure is often set out in the following way.


The trust is controlled by a husband and wife, who are the main beneficiaries. The other beneficiaries are usually their children and spouses, as well as their children’s children.


This sort of trust is usually restricted to family members and no-one else.


Unlike in a unit trust where allocation and distribution of the trust income is set out in a deed, the trustee of a family trust has complete discretion when it comes to who gets what. And, they can change this whenever or as much as they want to.


Also, the beneficiaries of a family trust do not get to leave their share to whoever they want to when they die. Instead, the trust deed sets out a distinct flow of ownership rights.


There are variations on the type of ownership flow.


Just like in a unit trust, individuals cannot claim interest on borrowed funds used to purchase assets within the trust.




As the name suggests, a hybrid trust is a combination of a unit and discretionary trust.


Under a hybrid trust, beneficiaries hold a defined number of units.


The trustee has the discretionary power to change the entitlements and income of each beneficiary.


Interest on borrowed money used to purchase units can be claimed as a deduction.




This is a tad more restrictive than the trust structures mentioned above.


Trustees of a SMSF can borrow money for the purpose of acquiring a single asset.


The type of loan they use must be what is known as a Limited Recourse Borrowing Arrangement (LRBA).


Under this arrangement, the lender cannot hold any other assets owned by the SMSF as security against the loan.


A lender can be either a financial institution or a related party, such as a member of the fund.


This is where it starts to get complicated.


The property purchased must be held by a bare trust with the SMSF as the beneficiary.


This means the trustee of the bare trust must be the one involved in the purchasing process.


The bare trust is the registered holder of the asset until the loan is repaid, all while the SMSF receives rental income and pays interest on the loan.


Once the loan is repaid, legal ownership needs to be transferred to the trustee of the SMSF.


The trustee of the bare trust and the trustee of the SMSF cannot be the same person or company.



Before considering whether a trust is right for you, make sure you weigh up the pros against the cons. Setting up a trust can be costly – and it may not be necessary depending on your situation and needs.


It always pays to talk with the experts. A MAP session is a good starting point to understand the strategic applications of trusts.


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