Declaration of Trust (before you buy)

What is a Declaration of Trust?
When you own an asset you usually own both the ‘legal’ and ‘beneficial’ interest. A trust is created when the ‘legal’ and ‘beneficial’ ownership is separated. This Declaration of Trust (sometimes called a ‘Bare Trust’) formally records that a trust is declared over the asset and the terms on which the trust is declared.

This document is suitable when the Trustee has not yet purchased the trust asset, but intends that they will purchase the asset and will at all times hold the asset on trust for the Beneficiary. This agreement declares that the true (beneficial) owner is the Beneficiary.

This document can also be used to purchase ungeared assets in a Self Managed Superannuation Fund ("SMSF").

What type of trust asset can the Declaration of Trust be used for?
Trust assets can take many forms. You can use this document to declare a trust relationship over many forms of assets, including:

• Cash;
• Real property;
• Artworks and collectables; and
• Shares, equities and other financial instruments.

This document is also suitable for use where the asset is an unencumbered SMSF asset. However, this document cannot be used if the SMSF asset will be geared. You should seek legal advice if your SMSF is borrowing money to purchase a geared asset.

Who cannot use this document?

This document is not suitable where:

• The Beneficiaries intend to own the trust asset in unequal shares;
• The asset will be purchased by an SMSF and will be geared (you should seek legal advice if your SMSF is borrowing money to purchase the asset); and/or
• The Trustee has already purchased the asset on behalf of the Beneficiary. If the Trustee has already purchased the asset, then use the Acknowledgement of Trust document instead.

Checklist is not available for this document.

Sample is not available for this document.

Trustee
• What is a Declaration of Trust?
• Can I use this document to purchase multiple properties?
• A Human or a Company as Trustee?
• A Company as Trustee
• A Human as Trustee
• Can the Trustee hold other jobs?
• I am confused between the ‘trustee’ and the ‘beneficiary’
• I already own the Trust Asset
• Ownership requirements to use this Declaration of Trust
• Who cannot use this document?
• SMSF: Is the Trustee of the SMSF also the Trustee of this Declaration of Trust?
• SMSF: Can the Trustee of this Declaration of Trust be a corporate Trustee?
• How many trustees?
Beneficiary Details
• Who is the Trustee? Who is the Beneficiary?
• More than one Beneficiary?
• What is the beneficiary's capacity?
• Can a Superannuation Fund be the beneficiary?
• Can the Beneficiary be a family trust with a corporate trustee?
• Can the Beneficiary be a Self Managed Superannuation Fund with a corporate trustee?
• Can the beneficiary be a family trust with human trustees?
• How many beneficiaries?
Asset Details
• How do I describe the Asset?
• How do I describe real estate?
• Can I use this document to purchase many properties?
• What supporting evidence do I need to show?
• Ownership requirements to use this Declaration of Trust
• What does Joint Tenants mean?
• What does Tenants in Common mean?
Vendor Details
• Who is the vendor?
• What if the vendor (seller) is a company?
• When does the Declaration of Trust need to be signed?
• Does the vendor need to sign the Declaration of Trust?
• What if there is more than one vendor?
Governing Law
• What State do I choose?

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Trustee

• What is a Declaration of Trust?

  When you own an asset you usually own both the 'legal' and 'beneficial' interest. A trust is created when the 'legal' and 'beneficial' ownership is separated. This Declaration of Trust (sometimes called a ‘Bare Trust’) formally records that a trust is declared over the asset and the terms on which the trust is declared.
  
  This document is suitable when the Trustee has not yet purchased the Trust Asset, but intends that they will purchase the asset and will at all times hold the asset for the Beneficiary. This agreement declares that the true (beneficial) owner is the Beneficiary.
  
  This document can also be used when purchasing unencumbered assets for a Self Managed Superannuation Fund.
  

  This hint is provided by Law Central Legal.

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• Can I use this document to purchase multiple properties?

  To keep it simple and distinct it is better to set up a Declaration of Trust for each major asset.

  This hint is provided by Law Central Legal.

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• A Human or a Company as Trustee?

  You can have either Human Trustees or Company Trustees.
  
  The Trustee holds the Trust Asset in the Trustee's name as the legal owner for the benefit of the beneficiaries.

  This hint is provided by Law Central Legal.

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• A Company as Trustee

  Select the "Company" button at the top of the page.
  
  In the Company Name field, put in the full name of the company. For example, "Smith Enterprises Pty Ltd".
  
  In the Company ACN field, type in the ACN (Australian Company Number).
  
  Insert the Company's Registered Office address.

  This hint is provided by Law Central Legal.

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• A Human as Trustee

  Select the "Human" button.
  
  Put in the human's full name and address.

  This hint is provided by Law Central Legal.

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• Can the Trustee hold other jobs?

  Yes of course a Trustee can wear more than one hat.
  
  Let’s say that Jill is the bare trustee. She can still hold bank accounts for herself personally. She can still go to work and live her life. By being a bare trustee she is just taking on another job.
  
  What about when the Trustee is a company? Same thing as above. The company can hold down many jobs and roles. The company could be trustee of many trusts. The company could trade and own its own business personally - as well as hold the job of Trustee.
  

  This hint is provided by Law Central Legal.

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• I am confused between the ‘trustee’ and the ‘beneficiary’

  The Trustee holds the asset on trust for the beneficiary.
  
  It may appear to all the world that the owner is the Trustee, but the beneficial owner (true owner) is the Beneficiary.

  This hint is provided by Law Central Legal.

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• I already own the Trust Asset

  If you already own the Trust Asset, then this Declaration of Trust document is not the right document for you. You may wish to look at the Acknowledgement of Trust document instead.

  This hint is provided by Law Central Legal.

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• Ownership requirements to use this Declaration of Trust

  This Declaration of Trust can only be used when:

  1. There is one beneficiary that owns the asset absolutely;
  2. There are two or more beneficiaries that beneficially own the asset either as joint tenants or as tenants in common in equal shares;
  3. An unencumbered asset is being purchased for a Self Managed Superannuation Fund (and therefore the beneficiaries beneficially own the asset as joint tenants, or absolutely in the case of a corporate trustee).
  This document cannot be used if the beneficiaries own the property as tenants in common in unequal shares. In this circumstance, you may wish to seek legal advice.
  
  This document cannot be used where an SMSF is purchasing geared assets. You may wish to seek legal advice on this point.

  This hint is provided by Law Central Legal.

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• Who cannot use this document?

  This document is not suitable where:

  • The beneficiaries intend to own the trust asset in unequal shares;
  • The property will be purchased by a SMSF and will be geared (you should seek legal advice if your Superannuation Fund is borrowing money to purchase the asset); and/or
  • The Trustee has already purchased the asset on behalf of the Beneficiary. If the Trustee has already purchased the asset, then consider using the Acknowledgement of Trust document instead.

  This hint is provided by Law Central Legal.

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• SMSF: Is the Trustee of the SMSF also the Trustee of this Declaration of Trust?

  Yes, for SMSF assets the Trustee(s) of the Declaration of Trust should be the same as the Trustee(s) of the SMSF.
  
  You need to separately include each Trustee of the Self Managed Superannuation Fund (SMSF) as a Trustee of the Declaration of Trust.
  
  For example, Jill Jones and Janet Jones are the only members and trustees of the Jones Superannuation Fund (ABN 44 123 456 789). Jill Jones and Janet Jones are going to purchase property for their SMSF. On the Offer and Acceptance for the Purchase and Sale of Land form, they note that the offer to purchase is being made by "Jill Jones as trustee for the Jones Superannuation Fund and Janet Jones as trustee for the Jones Superannuation Fund". However they know that their state's laws mean that only Jill Jones and Janet Jones will be recorded as the registered proprietors on the Certificate of Title. They receive professional advice to prepare this Declaration of Trust prior to purchasing the commercial property. They would fill in the Trustee details as follows:
  
  Trustee 1:
  First name: Jill
  Middle name:
  Last name: Jones
  
  Trustee 2:
  First name: Janet
  Middle name:
  Last name: Jones
  

  This hint is provided by Law Central Legal.

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• SMSF: Can the Trustee of this Declaration of Trust be a corporate Trustee?

  Yes, for SMSF assets the Trustee of the Declaration of Trust should be the same as the Trustee of the SMSF.
  
  You need to separately include each Trustee of the Self Managed Superannuation Fund as a Trustee of the Declaration of Trust.
  
  When you are selecting Trustee type, select
  "company". You would fill in the Trustee details as follows:
  
  Trustee 1:
  Company Name: Jones Pty Ltd
  ACN: ACN 123 456 798

  This hint is provided by Law Central Legal.

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• How many trustees?

  This document allows you to enter either:

  • 1 company trustee; or
  • up to 4 human trustees.
  You cannot enter a combination of corporate and human trustees.

  This hint is provided by Law Central Legal.

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Beneficiary Details

• Who is the Trustee? Who is the Beneficiary?

  The Trustee is the person that holds the asset for the Beneficiary.
  
  The Beneficiary is the "true" or "beneficial" owner.
  
  At any time the Beneficiary can direct the Trustee to transfer the asset to the Beneficiary.
  
  The Beneficiary is in control. However, to the world it just looks like the Trustee "owns" the asset. However, the true owner or beneficial owner is the Beneficiary.

  This hint is provided by Law Central Legal.

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• More than one Beneficiary?

  Yes. This is fine. You can have as many Beneficiaries as you please.
  
  If you have more than one Beneficiary then each Beneficiary is deemed to be equal owners of the asset. For example, if there are 2 Beneficiaries then they are deemed to hold the asset beneficially as either:

  • tenants in common in equal shares; or
  • joint tenants
  You can choose whether the asset will be held as joint tenants or tenants in common.

  This hint is provided by Law Central Legal.

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• What is the beneficiary's capacity?

  Only enter a capacity if the Beneficiary is an entity such as a Self Managed Superannuation Fund or a Family Trust. i.e. "Atkins Pty Ltd ACN 123 456 789 as trustee for the JC Atkins Superannuation Fund".
  
  If the Beneficiary is an individual or company in their own right, then leave this field blank. There is no need to enter a capacity.
  
  For example, Jillian Shadbolt purchased a car in 2013 for her daughter Sophie Shadbolt. The beneficiary would simply be entered as:
  
  First Name: Sophie
  Middle Name:
  Last Name: Shadbolt
  Capacity:
  

  This hint is provided by Law Central Legal.

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• Can a Superannuation Fund be the beneficiary?

  Yes, that is fine, provided the asset is not encumbered. The beneficiary of a Declaration of Trust can be a Superannuation Fund.
  
  You need to separately include each Trustee of the Self Managed Superannuation Fund (SMSF) as a Beneficiary of the Declaration of Trust.
  
  For example, Jill Jones and Janet Jones are the only members and trustees of the Jones Superannuation Fund (ABN 44 123 456 789). Jill Jones and Janet Jones are going to purchase property for their SMSF. On the Offer and Acceptance for the Purchase and Sale of Land form, they note that the offer to purchase is being made by “Jill Jones as trustee for the Jones Superannuation Fund and Janet Jones as trustee for the Jones Superannuation Fund”. However they know that their state’s laws mean that only Jill Jones and Janet Jones will be recorded as the registered proprietors on the Certificate of Title. They receive professional advice to prepare this Declaration of Trust prior to purchasing the commercial property. They would fill in the beneficiary details as follows:
  
  Beneficiary 1:
  First name: Jill
  Middle name:
  Last name: Jones
  Capacity: as trustee for the Jones Superannuation Fund
  
  Beneficiary 2:
  First name: Janet
  Middle name:
  Last name: Jones
  Capacity: as trustee for the Jones Superannuation Fund
  

  This hint is provided by Law Central Legal.

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• Can the Beneficiary be a family trust with a corporate trustee?

  Yes, that is fine.
  
  You need to separately include each Trustee of the family trust as a Beneficiary of the Declaration of Trust.
  
  When you are selecting Beneficiary type, select “company”. You would fill in the Beneficiary details as follows:
  
  Beneficiary 1:
  Company Name: Jones Pty Ltd
  ACN: ACN 123 456 798
  Capacity: as trustee for the JP Jones Family Trust.
  

  This hint is provided by Law Central Legal.

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• Can the Beneficiary be a Self Managed Superannuation Fund with a corporate trustee?

  Yes, that is fine.
  
  You need to separately include each Trustee of the Self Managed Superannuation Fund as a Beneficiary of the Declaration of Trust.
  
  When you are selecting Beneficiary type, select “company”. You would fill in the beneficiary details as follows:
  
  Beneficiary 1:
  Company Name: Jones Pty Ltd
  ACN: ACN 123 456 798
  Capacity: as trustee for the JP Jones Superannuation Fund
  

  This hint is provided by Law Central Legal.

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• Can the beneficiary be a family trust with human trustees?

  Yes, that is fine.
  
  You need to separately include each trustee of the family trust as a beneficiary of the Declaration of Trust.
  
  For example. Colin Smith and Jamie Smith are the trustees for the Smith Family Trust. Colin Smith and Jamie John Smith want to purchase a property in their Family Trust. When preparing this Declaration of Trust before purchasing the property, they would enter their details as follows:
  
  Select beneficiary type “human”
  
  Beneficiary 1 Details:
  First Name: Colin
  Middle Name:
  Last Name: Smith
  Capacity: as trustee for the Smith Family Trust
  
  Beneficiary 2 Details:
  First Name: Jamie
  Middle Name: John
  Last Name: Smith
  Capacity: as trustee for the Smith Family Trust
  

  This hint is provided by Law Central Legal.

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• How many beneficiaries?

  This document allows you to enter either:

  • 1 company beneficiary; or
  • up to 4 human beneficiaries.
  You cannot enter a combination of corporate and human beneficiaries.

  This hint is provided by Law Central Legal.

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Asset Details

• How do I describe the Asset?

  The asset can be anything you want. It may be shares, property or something else.
  
  The asset is the subject of the trust. The Trustee will hold the asset for the benefit of the Beneficiary.

  This hint is provided by Law Central Legal.

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• How do I describe real estate?

  If the asset includes land you need to describe the property in full. All information about the property is located on your Certificate of Title.
  
  Depending on the State you live in the description of the property should look something like this: "Lot 4 on Plan 309 being the whole of the land in Certificate of Title Volume 2221 Folio 4956 being the property known as 24 Waverley Street, Bicton, Western Australia."

  This hint is provided by Law Central Legal.

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• Can I use this document to purchase many properties?

  To keep it simple and distinct it is better to set up a Declaration of Trust for each major asset.

  This hint is provided by Law Central Legal.

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• What supporting evidence do I need to show?

  It is very important that you have supporting evidence to show that at the time of purchase, you intended to purchase the property as trustee, rather than purchasing it for yourself.
  
  Examples of strong supporting documentation usually include:

  • A Declaration of Trust from Law Central executed prior to the Contract of Sale and Purchase being executed;
  • A Contract of Sale and Purchase which states that the property was bought as trustee for the beneficiary. For example, the purchaser is noted as "Waycona Pty Ltd ACN 123 456 789 as trustee for the Waycona Super Fund";
  • Notes or minutes in the Company Secretary file noting the trust relationship;
  • Cheque butts showing that the purchase moneys came from the Beneficiary;
  • Credit card statements showing that all fees, duties, rates etc. relating to the asset were paid by the Beneficiary; and
  • Contemporaneous file notes and correspondence noting that the beneficial owner is the Beneficiary.
  If you fail to have sufficient documentary evidence then you may be required to pay state duty again on the value of the asset (called "ad valorem" duty) when the trustee eventually tries to transfer the property to the beneficiary. Depending on the value of the asset, this can be quite high. There may also be Capital Gains Tax.
  
  Finally, if you have a Self Managed Superannuation Fund ("SMSF") and you can't prove that the asset was acquired for the SMSF then you may have a non-complying SMSF. This has grave and expensive consequences.
  
  You need to check with your accountant and your lawyer to ensure that you record adequate documentation to prove that the true beneficial owner is the beneficiary.

  This hint is provided by Law Central Legal.

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• Ownership requirements to use this Declaration of Trust

  This Declaration of Trust can only be used when:

  1. There is one beneficiary that owns the asset absolutely;
  2. There are two or more beneficiaries that own the asset as either joint tenants or as tenants in common in equal shares;
  3. An unencumbered asset is being purchased for a Self Managed Superannuation Fund (and therefore the beneficiaries beneficially own the asset as joint tenants, or absolutely in the case of a corporate trustee).
  This document cannot be used if the beneficiaries own the property as tenants in common in unequal shares. In this circumstance, you may wish to seek legal advice.
  
  This document cannot be used where an SMSF is purchasing geared assets. You may wish to seek legal advice on this point.
  

  This hint is provided by Law Central Legal.

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• What does Joint Tenants mean?

  If you are a joint tenant it means:

  • you and the other owners jointly own the whole property;
  • there are no specified shares in the property;
  • the principle of survivorship applies. If one owner dies, the other owner or owners automatically acquire that person's interest in the property; and
  • no part of the property can be sold, given away or willed without the agreement of all the owners.

  This hint is provided by Law Central Legal.

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• What does Tenants in Common mean?

  If you are a tenant in common, each co-owner owns a distinct and defined share of the property (e.g. 50%). Tenants in common do not have to have equal ownership of the property. However, this document is only suitable where the asset is held in equal shares.
  
  As a tenant in common, you can deal with or transfer your share of the property to someone else. This means that your share in the property forms part of your estate and you can leave it to someone else in your Will.

  This hint is provided by Law Central Legal.

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Vendor Details

• Who is the vendor?

  A vendor may be anyone. They may be a company or a person. The vendor is the one selling the asset.

  This hint is provided by Law Central Legal.

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• What if the vendor (seller) is a company?

  If the Vendor (seller) is a company just add the Company name followed by the ACN in the Name field.
  
  It may look like: Greg Harris Pty Ltd ACN 123 456 789
  
  If the Vendor is a company use the Company's Registered Office Address as the Vendor Address

  This hint is provided by Law Central Legal.

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• When does the Declaration of Trust need to be signed?

  The Trustee and Beneficiary must sign this Declaration of Trust BEFORE the Contract for Sale and Purchase is signed. If you don't you may have to pay double stamp or transfer duty.
  
  

  This hint is provided by Law Central Legal.

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• Does the vendor need to sign the Declaration of Trust?

  The Vendor is not a party to the Declaration of Trust. The Vendor does not need to sign this Declaration of Trust.

  This hint is provided by Law Central Legal.

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• What if there is more than one vendor?

  That is fine.
  
  Let's assume that "Thomas Smith" and "William Jones" are the owners of the asset.
  
  In the Name field, type:
  
  Thomas Smith and William Jones

  This hint is provided by Law Central Legal.

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Governing Law

• What State do I choose?

  You should choose the state where the trustee resides. If there are multiple trustees who reside in different states, then you will need to agree on a state.
  
  Where the Trust Asset is real property, you should always choose the state that the property is located in.

  This hint is provided by Law Central Legal.

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This document has been prepared by the law practice Law Central Legal

Liability limited by a scheme approved under Professional Standards Legislation