Business Structuring: Trusts and key considerations - JHK Legal Commercial Lawyers

8 June 2022

Business Structuring: Trusts and key considerations

Written by: Costa Stathis

The Australian Bureau of Statistics revealed for the 2020 – ‘21 period there were 364,480 new business entries, and 277,674 business exits in the Australian market, recording a net change of 87,406 new businesses in Australia.

It has been speculated for the 2021 – ‘22 period that the growing business boom (notably in small business) is set to continue leading our economy forward and supporting our labour market in Australia.  

Starting your own business can be both challenging and extremely rewarding. It is important that prior to any commercial or investment venture being embarked upon, consideration is given to the most appropriate business structure to conduct the business.

When determining the most appropriate business structure to run your business, it will largely depend on the type of business, and the scale you intend to operate the business.

The most common business structures in Australia are:

  • Sole traders;
  • Partnerships;
  • Joint ventures;
  • Companies;
  • Associations;
  • Co-operatives; and
  • Trusts.

Whilst the business structure of a sole trader, partnership, or company is most commonly considered to conduct a business, we are seeing a growing number of clients electing to setup and operate their business through a trust structure.

Common questions we are asked in relation to a trust is: what is a trust? how can a trust be used? how do you appoint a different trustee? What should we consider when changing a trustee?

In this article, we provide an introductory response to some of those questions that we are commonly asked.

What is a trust and who is involved?

Well, what is a trust? a trust is not technically a separate legal entity, it is a fiduciary relationship recognised at common law which imposes obligations on certain parties to act in a certain manner, those parties being:

  • The Settlor: responsible for establishing and settling the trust by executing the trust deed and paying the initial settlement sum;
  • The Appointor (Principal): responsible for the appointment or removal of the trustee;
  • The Trustee: an individual or corporate entity to whom is the legal owner of the trust property. The trustee is bound to exercise rights and powers in good faith, responsibly, honestly, and in good confidence to the interests of the beneficiary; and
  • The Beneficiary/ies: the beneficial owner of the property in equity to whom the trustee is holding the property until such time as it is determined entitled to receive the benefit.

In simple terms, a trust is whereby a person or entity leaves income or other property in the possession of a trustee to be distributed to a beneficiary which is ordinarily recorded in a trust deed, or an individuals Will (testamentary trust).

There are various types of trusts which are used for different purposes, whilst not an exhaustive list, the most common types of trusts are:

  • fixed/unit trusts;
  • discretionary trusts;
  • bare trusts;
  • hybrid trusts;
  • testamentary trusts;
  • charitable trusts; and
  • superannuation trusts.

Whilst trusts are largely governed by common law, the legislation that governs trusts in Queensland is the Trusts Act 1973 (Qld) (the Trusts Act), with the other states of Australia having their own respective legislation (Trustee Act 1925 (ACT), Trustee Act 1925 (NSW), Trustee Act 1893 (NT), Trustee Act 1936 (SA), Trustees Act 1962 (WA).

Why use a trust structure?

We are seeing a growing number of individuals and entities requiring our assistance with the creation of trusts for commercial and investment purposes.

The growing popularity for the use of trusts to hold and distribute income or other property is largely attributable to the many benefits a trust can provide, including but not limited to:

  • the flexibility in the distribution of income and other trust property;
  • increased asset protection;
  • the limitation on business liability;
  • reduced disclosure requirements than that of a company;
  • separation of the control of property;
  • various tax benefits; and
  • the relatively inexpensive costs to setup.

Can we change a trustee?

We have previously provided a guide in relation to a trustees duties, powers, and liabilities (The quick guide to the duties, powers, and liabilities of being a trustee:,

When appointing a trustee, section 11 of the Trusts Act allows up to a maximum of four (4) trustees to be appointed per trust.   If you are unable to perform the duties of a trustee, section 12 of the Trusts Act provides the power to appoint an original or substituted trustee upon the trustee:

  • being dead; or
  • out of the State for more than one (1) year without properly delegating the execution of the trust;
  • seeking to be discharged from all or any of the trusts or powers reposed in or conferred on the trustee; or
  • refusing to act; or
  • being unfit or incapable to act; or
  • being an infant/minor; or
  • in the circumstance of a corporation, ceasing to carry on business, is under official management, is in liquidation or has been dissolved.

When changing a trustee, the correct steps must be followed to ensure the trustee has been properly discharged. Consideration must be given to section 14 of the Trusts Act which states that in circumstances whereby two or more individuals are appointed as a trustee, the retiring trustee is not discharged from all or any part of the trust duties reposed in the trustee, unless there is:

  • a trustee corporation; or
  • at least 2 individuals to act as trustees,

to perform the trust or part of the trust from which that trustee desires to be discharged.

How to change a trustee

In order to change a trustee, the process is relatively simple:

  • Consult the trust deed to identify where the power exists to change the trustee;
    • If no power exists, a deed of variation of trust deed is to be entered into providing a power to change the trustee (it is important that consideration is given to the variation to ensure there is no resettlement of the trust which can have significant consequences).
  • Upon the power in the trust deed being identified, a change of trustee deed is to be entered into between the relevant parties; or
  • Alternatively, a court can appoint a trustee to manage the trust property in the interest of the beneficiaries if it is desirous to do so.

When changing a trustee, s 117 of the Duties Act 2001 (Qld) provides an exemption from any transfer duty that may be payable resulting from a change of trustee.

Issues to consider

Some additional issues to consider when changing a trustee, is to ensure:

  1. Titles Queensland is advised of the change of trustee to ensure any real property held by the previous trustee is transferred into the name of the new trustee;
  2. Any signatories on any bank accounts or other authorities are updated to reflect the new trustee;
  3. Any trustee liability or indemnity insurance is held by the new trustee.

How can we help you?

JHK Legal can assist individuals and entities to identify the most appropriate business structure, and more particularly assist you in achieving your commercial or investment objectives.

We have extensive experience on trust related matters including drafting or settling a trust, changing the trustee, terminating a trust, or disputes around trustee duties, trust deed interpretation, negligence, or other trust related matters that may arise.

If you would like to have a discussion in relation to your business structuring or any other legal needs, please do not hesitate to contact us for assistance.