Express trust

In an express trust, the settlor indicates an intention to and deliberately creates the trust, while a non-express trust is one that arises by operation of law, such as when created by statute or by judges, such as a constructive trust.

An express trust may be an public express trust such as one for a charitable purpose, or a private express trust with the private purpose.

Classification of trusts

There are a variety of trusts recognised and used in Australia, including unit trusts, discretionary trusts, hybrid trusts, and testamentary trusts.

Under a discretionary trust the share, if any, which each beneficiary is to receive is determined by the trustees. Therefore, the trustee has a discretion as to which beneficiary is to receive income or capital under the trust even if there is a duty for them to distribute the income. In addition, the trustees also have a discretion as to the amount that each beneficiary will receive. However, the beneficiary has no real right substantively.

Streaming a category of trust income to a particular beneficiary provides tax planning opportunities. For example, foreign tax credits can be best used by resident individual beneficiaries with high marginal tax rates and net capital gains can be best used by beneficiaries with carried forward capital losses, low-income beneficiaries with carried forward revenue losses and minors able to receive excepted trust income. However, discretionary trusts are usually unsuitable for the accumulation of profits as the undistributed income will generally be taxed at 45%.

Family trusts are often used to distribute income to beneficiaries in an attempt to achieve the lowest tax outcomes available to the members of the trust. Discretionary trusts also protect assets when individual members become insolvent or bankrupt. Asset protection is also extended to other types of liabilities.

The power of appointment of the trustee of a discretionary trust is held by the Appointor. In some trust deeds, the person holding the power of appointment of the trustee is called the Custodian or the Principal of the trust. The Appointor is usually a natural person but can also be a company. Generally, upon the death of the Appointor, in the absence of an alternate appointment in the trust deed, the personal legal representative (executor) of the Appointor becomes the Appointor. The real power in relation to the control of the trust rests with the Appointor because of the ability to terminate the appointment of the trustee and appoint a different trustee. This must be kept in mind when considering succession and estate planning involving assets held in a discretionary trust.

Bare trust

A bare trust is a basic trust in which trust assets are held in the name of a trustee but the beneficiary, if he or she is above 18 years of age, has the absolute right to the capital, assets and income of the trust. The trustee has no say in how or when the trust's capital or income is distributed and must act according to the beneficiary's instructions. Bare trusts may be established because they offer tax advantages to the settlor or beneficiary and may arise when all conditions to which a beneficiary is subject (such as age) have been satisfied.

Declaration of trust

A settlor can declare him/herself trustee of his/her own property. The settlor already holds title to the property and all that needs to be done is to make a valid declaration. However, a declaration of trust will not be allowed out of an invalid gift.

Formalities relevant depend on nature of trust property. A trust of land must comply with statutory requirements based on the Statute of Frauds 1677.

Where the trust is created by virtue of a contract made as consideration for marriage, or a contact which concerns any interests in land, s 4 of the Statute of Frauds (or their equivalent legislation in other states)^[8] may operate to void such a contract unless it is evidenced in writing and signed by both parties to be charged.^[9]

Trusts created by transfer

A settlor can create an express trust by transferring property to a trustee to hold on trust. Two requirements must be satisfied:

• declaration of trust, which must establish that the recipient of the property is intended to take the property in the capacity of trustee and not beneficially. The words used by the settlor will be construed in the context of the transfer itself.^[10]
• there must be a valid transfer of trust property following the principle set out in Corin v Patton^[11] which held a transfer may be valid in equity even though it may not be considered valid at law. A transfer will be considered valid in equity only when the settlor has done all the things that must be done to transfer their interest in the property. The things required to be done by the settlor cannot be done by anyone else.^[11]

Trusts of land created by transfer must be evidenced in writing, as required by provisions derived from the Statute of Frauds 1677. See also Conveyancing Act 1919 (NSW) s23C.^[12]

A trust that fails to meet the requirement to transfer property in writing will not be void, rather it will be unenforceable.^[13]