What are the main uses and benefits of a discretionary trust?

• Discretionary trusts are most commonly used for:
  • tax benefits;
  • land holdings;
  • family financial provision;
  • protection of assets; and
  • estate planning.
• Discretionary trusts are generally more effective as a holding entity for investments and for commercial real estate or other larger fixed assets. Capital gains tax is charged on the disposal of assets except in the case of personal assets and the principal place of residence. Trusts usually obtain a 50% exemption where all beneficiaries are individuals.
• As trust assets are held for the benefit of beneficiaries property held on trust cannot be taken in bankruptcy proceedings against the trustee subject to certain exceptions.
• When distributing income among potential beneficiaries the trustee also has discretion to consider how distributions to beneficiaries might impact their annual taxable income.