Buying shares in a family trust is a recognised legal strategy in Australia for structuring wealth, protecting assets, and managing succession. Unlike direct share ownership, where an individual’s name appears on the company’s share register, a family trust separates ownership: the trustee holds legal title to the shares, while beneficiaries enjoy the equitable interests defined in the trust deed.
This division creates opportunities for tax distribution and estate planning, but it also imposes fiduciary duties, strict compliance obligations, and potential tax consequences.
What Does Buying Shares in a Family Trust Mean?
Buying shares in a family trust means that the trustee acquires and legally holds shares in a company on behalf of beneficiaries. The trustee appears as the shareholder on the company’s register and exercises voting rights, while beneficiaries enjoy the benefits such as dividends or capital gains.
Beneficiaries cannot directly control or transfer the shares, but they hold enforceable equitable rights under trust law. The trustee must therefore manage the shares in strict accordance with the trust deed and fiduciary duties owed to all beneficiaries.
Benefits of Buying Shares in a Family Trust
Holding shares in a family trust can provide several legal and financial advantages:
- Creditor protection – shares held in trust are generally protected from claims against individual beneficiaries, subject to clawback provisions under bankruptcy and family law.
- Succession planning – shares remain within the trust structure, avoiding probate and providing continuity across generations.
- Tax distribution flexibility – trustees may allocate dividend income or capital gains among beneficiaries in a tax-efficient manner, subject to ATO rules.
- Wealth structuring – shares and other assets can be managed collectively, reducing intra-family disputes and ensuring consistency of ownership.
These advantages are particularly relevant for families with substantial business or investment portfolios.
Disadvantages and Legal Limitations of Buying Shares in a Family Trust
Despite its benefits, trust ownership of shares introduces significant limitations:
- Loss of direct control – beneficiaries cannot exercise shareholder rights personally.
- Tax complexity – franked dividends and capital gains must be distributed in line with detailed ATO requirements.
- Compliance obligations – trustees must maintain records, lodge trust tax returns, and comply with both trust law and corporations law.
- Financing restrictions – lenders may be reluctant to lend against trust-held shares without additional guarantees.
- Capital gains tax (CGT) – transfers of shares into or out of a trust may trigger CGT and stamp duty liabilities.
These disadvantages illustrate that trust ownership involves both regulatory oversight and financial cost.
Legal Implications of Buying Shares in a Family Trust
The acquisition of shares through a trust engages multiple areas of law:
- Trust deed authority – the deed must expressly empower the trustee to acquire and hold shares.
- Fiduciary duties – trustees must act in the best interests of all beneficiaries and avoid conflicts of interest.
- Corporations Act 2001 (Cth) – trustees, as shareholders, must comply with disclosure and reporting obligations.
- Tax law – dividend distributions and capital gains are subject to strict ATO scrutiny and anti-avoidance rules.
Failure to comply with any of these obligations can expose trustees to litigation or penalties.
Tax Implications of Buying Shares in a Family Trust
Trust-held shares attract complex taxation outcomes:
- Dividends – dividends are taxable in the hands of beneficiaries; franked dividends require compliance with franking credit rules.
- Capital gains – sales of shares can trigger CGT, and eligibility for the 50% discount depends on the trust structure.
- Stamp duty – share transfers into a trust may attract duty, depending on jurisdiction.
- Trust loss provisions – ATO rules prevent trusts from improperly offsetting share losses against other income.
Professional tax planning is essential before shares are acquired in a family trust.
Family Trust Shares vs Direct Ownership
The comparison underscores fundamental legal differences:
- Direct ownership gives individuals voting rights, dividend entitlements, and simpler tax reporting.
- Trust ownership separates legal control from beneficial enjoyment, offering asset protection and succession planning but with added compliance and tax burdens.
The decision depends on whether long-term structural benefits outweigh the efficiency of direct ownership.
FAQs About Buying Shares in a Family Trust
Trust-based share acquisitions prompt recurring legal questions.
Can You Buy Shares in a Family Trust?
Yes. A trustee can acquire company shares if the trust deed authorises it. The trustee is the legal shareholder, while beneficiaries hold equitable entitlements.
What Are the Legal Implications of Buying Shares in a Family Trust?
Trustees must comply with fiduciary duties, the Corporations Act, and the trust deed. All decisions must serve the interests of beneficiaries collectively.
What Are the Tax Implications of Buying Shares in a Family Trust?
Dividends are distributed under complex ATO rules. CGT may apply on disposals, and franked dividends must be allocated carefully to avoid tax penalties.
How Do Family Trusts Hold Shares?
Shares are registered in the trustee’s name. Beneficiaries benefit indirectly, while trustees exercise shareholder rights in line with fiduciary duties.
Can You Buy a Beneficial Interest in a Family Trust?
Generally no. Beneficiaries in a discretionary trust do not purchase interests; they are appointed under the deed and have no fixed entitlement to trust assets.
Transferring Shares to a Family Trust
Shares can be transferred to a trust, but such transfers often trigger CGT and stamp duty. Legal review of the trust deed is essential before proceeding.
Family Trust Shares Transfer Process
The transfer process includes updating the company share register to record the trustee as shareholder, notifying ASIC if applicable, and ensuring compliance with the trust deed.
Conclusion
Buying shares in a family trust is a sophisticated estate planning and asset protection strategy, but it is not universally appropriate. Trustees face fiduciary and statutory obligations under both trust law and corporations law, while tax treatment of dividends and capital gains is tightly regulated by the ATO.
Families considering this pathway should obtain independent legal and tax advice. A well-drafted trust deed, prudent trustee management, and ongoing compliance are essential to achieving the benefits of trust-based share ownership without incurring unnecessary legal or financial risks. For families seeking expert support, it may be valuable to know how to find a good family law lawyer who can provide tailored guidance on structuring trusts and managing shareholdings.
