The settlor:

• provides the initial settled sum to establish the trust;

• has no other role;

• must not be a beneficiary; and

• must not gift or transfer any other property to the trust.

The trustee:

• is the legal owner of the trust assets;

• is bound by the trust deed;

• is subject to the relevant state or territory trustee legislation;

• holds the assets for the beneficiaries; and

• can be an individual or a corporation.

A corporate trustee has the following advantages:

• it continues to exist despite the death of any person;

• it has limited liability (subject to certain exceptions such as s 197 of the Corporations Act 2001 (Cth)); and

• it removes individuals from direct control of the trust property.

The appointor:

• can generally remove the trustee and appoint a new trustee;

• generally must be consulted before major decisions are made by the trustee; and

• is sometimes called “the guardian”, or the “the protector”, or may have division of powers with such persons; and

• exercises at least some degree of indirect control over the trust.

Beneficiaries of a discretionary trust:

• are for a family discretionary trust generally defined as widely as possible within a family group;

• generally include corporations and other trusts connected to individual beneficiaries; and

• have no proprietary interest in the assets of the trust generally or in any individual trust asset.

See Parties to a discretionary trust deed.

Powers and duties of trustees are found in:

• the general law relating to trusts;

• the various state and territory trustee legislation; and

• the trust instrument.

Many discretionary trusts have a similar structure. Some of the more important aspects of the trust deed are:

• definitions, including in particular:

• the formal declaration of the trust;

• the duration of the trust and the ability to appoint an earlier date;

• power to distribute income;

• power to distribute capital;

• power to stream income and capital gains;

• power to deal with the trust assets, including investment, carrying on business, raising capital, etc;

• mechanisms for appointment and removal of trustees;

• powers of the appointor;

• the right of indemnity of the trustee against the trust assets; and

• power to amend the trust deed.

Care must be taken when amending a deed as certain amendments may be considered by revenue authorities to be a re-settlement of the fund. This may lead to adverse tax and stamp duty consequences. Special care is required when adding or removing beneficiaries.

During the life of a trust, there may be a number of appointors. Care must be taken to ensure that an inappropriate person does not become the appointor because of inadequate drafting of the clause to suit the family circumstances.

Most states and territories now have legislation that requires trustees to take professional advice to ensure personal liability for negligence is avoided. Consideration needs to be given to whether the trustee should or should not be bound by those provisions.

See Standard discretionary trust clauses.