When a discretionary trust is involved, who needs to be KYC'd?

Discretionary trusts don't have shareholders, so the standard KYC of individuals who "own more than 25%" rule doesn't fit. AUSTRAC asks you to identify the people who actually control or benefits from the trust. Practically, that means:

• The Trustees - the people or company legally holding the trust assets.
• The Appointor (sometimes called the "principal" or "guardian") - the person with the power to hire and fire the trustee. This is usually the most controlling role and must be identified.
• Beneficiaries - for a discretionary trust with a class of beneficiaries you identify the individual named adult beneficiaries who could receive benefit (and minors who are not unnamed).
• The Settlor - AUSTRAC has indicated settlors should be identified and KYC'd if on reasonable grounds they have control over the trust.

A useful rule of thumb: if the trust is directly party to the transaction - or owns more than ~25% of a company that is - treat the named beneficiaries as people you may need to KYC, because each could in principle receive the whole benefit as and is therefore considered a UBO. eg there are 4 named beneficiaries of a trust that owns 40% of a company each is considered to directly own the full 40% (you do not divide the 25% ownership in 4 part of 10% each).

This is genuinely a nuanced area in AUSTRAC's guidance; document your reasoning for who you identified and why. See AUSTRAC's Overview of customer due diligence (Reform) page.

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• Does AUSTRAC require settlors to be identified and KYC as part of a trust CDD?
• When the customer is a trust, do beneficiaries need to be identified and verified? How does this differ by trust type?
• For company/trust onboarding where the trust deed isn't yet in easyAML, what should the user do?