A Hybrid Discretionary Trust takes the best features of a discretionary (family) trust and the best features of an unit trust and mix them together in the one entity to create a powerful and flexible tax planning solution.


A Discretionary Trust is one of the most common small business structures in Australia. Unlike, a Unit Trust, you establish a Discretionary Trust to benefit the members of a family.

The Hybrid Discretionary Trust structure is useful if you hold capital growth or income-generating assets. Some of the key attributes of the Hybrid Discretionary Trust are:

• prepared for asset protection purposes. It helps protect from bankruptcy and insolvency

• it is a relatively low cost and simple structure to use

• it allows you to distribute income to family members who are on low tax rates

• there are no formal audit requirements

• absence of any formal legislative framework, such as the Corporations Law, to control the activities of the trustee

• it allows you to “stream” income: you can distribute one type of income to one person and another type of income to another person

• unit holders can claim a deduction for the interest incurred on the cost of their units

• it is comparatively easy for new owners to join and for old owners to leave the structure

What is so special about Hybrid Discretionary Trusts?

Hybrid trusts take the best features of a discretionary trust as explained above and the best features of a unit trust and blend them into one entity to create a flexible and powerful tax planning solution.

This hybrid discretionary trust has all the features of a discretionary trust, but has the additional ability to issue units. The units shall be known as Special Units, Special Income Units, Special Capital Units or such other distinctive name as the Trustee determines.

The rights as to income and/or capital of the Trust Fund attaching to the units is determined by the Trustee in its absolute discretion, and are described in the Certificate of Units.

For example, a Special Attributable Income Unit may carry the following rights:

1. Income

a) Presently and absolutely entitled to the Special Attributable Income of the Trust Fund in the same proportion as the number of Special Attributable Income Units held by each Special Unitholder bears to the total number of such units on issue at that time.

b) Special Attributable Income of the Trust Fund means that proportion of the income of the Trust Fund as the Trustee determines is reasonably attributable to the investment by the Trustee of the moneys received by it from the issue of Special Units.

c) For example, in a trust which has assets of $1,000,000 and 300,000 Special Attributable Income Units on issue, those units would be entitled to 30% of the income of the trust.

see an edited version of Notice of Private Ruling Authorisation Number: 28993 on the ATO website dealing with this issue at http://www.ato.gov.au/rba/content.asp?doc=/rba/content/28993.htm

2. Capital

The holders of Special Attributable Income Units shall not have entitlement to any part of the capital of the Trust Fund.

3. Redemption

A holder of Special Attributable Income Units whose units have been redeemed by the Trustee, shall be entitled to receive from the Trustee an amount equal to the value of the units redeemed, calculated at the date of redemption PROVIDED THAT the value shall be not less then the amount paid by the holder

Asset Protection

The Hybrid Discretionary Trust is also one of the best ways to protect assets.

If the trust goes "down" then you generally only lose the assets in the trust. Therefore, don't mix high risk assets with low risk assets. For example, if you had a low risk asset (shares) you wouldn't contaminate them by also putting business assets in the same trust.

If your trust own a property and the trust is renting it out then this has some risk attached to. It isn't as risky as running a full blown business but it also isn't as safe as owning shares.

Our trusts are designed for asset protection.

However, hybrid trusts do not have the same asset protection advantages for unit holders that discretionary trusts have for beneficiaries. This is because of the nature of the units. The unit is a piece of property that entitles the unit holder to a proportion of the Special Attributable Income of the trust, as determined by the trustee.

However, the trustee can continue to exercise its discretion in favour of the classes of beneficiaries to the exclusion of the special unit holders.

Where the units in a hybrid trust are held by a bankrupt, the trustee in bankrupcty could "stand in the shoes' of the bankrupt beneficiary and take possession of the units in a the hybrid trust. However, the holding of units in our hybrid trust will not provide the trustee in bankruptcy with any power ove the manner in which the trustee of the hybrid trust exercises its discretion in distributing income and capital.

Other ways to hold assets:

Unit Trusts

Unit Trusts are similar to Discretionary Family Trusts but the income and capital are distributed exactly according to the units you hold in the Unit Trust.

Testamentary Trusts

Testamentary Trusts are more tax effective than any other entity - however you have to die to get one - a bit of a sacrifice! The Three Generation Trust is generally the most advanced.

Self Managed Superannuation Funds

Check with your Adviser first. You generally need $250,000 - $300,000 in Super to make these pay their way.

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