In Australian estate planning, family trusts serve as essential legal structures for safeguarding wealth, distributing income, and planning for future generations. A trust is not an entity in itself but a legal relationship where a trustee holds assets for the benefit of others (the beneficiaries) under the terms of a trust deed.
This article explores the different types of family trusts used in Australia, each with specific legal features, taxation frameworks, and suitability depending on individual or family objectives. Whether you are protecting family wealth, managing intergenerational transfers, or optimising tax outcomes, choosing the right trust structure is a strategic legal decision.
Under Australian law, a discretionary trust—commonly referred to as a family trust—grants the trustee broad discretion to determine how income and capital are distributed among a defined class of beneficiaries. While this is the most flexible structure, a common type is the property trust, which families often use to hold real estate and distribute rental income strategically.
A unit trust operates similarly to a company with shareholders, but within a trust framework. Beneficiaries hold defined “units” that entitle them to a proportionate share of income and assets.
Hybrid trusts combine discretionary and unit trust elements, offering both fixed and discretionary interests. They are less common but can be tailored for complex arrangements. For context, another example is the income trust, which focuses on distributing income streams to beneficiaries while maintaining control over the underlying assets.
A testamentary trust is established under a valid will and takes effect upon the death of the testator.
Special Disability Trusts are legislatively recognised structures aimed at securing the long-term welfare of people with severe disabilities.
While not used as frequently in family structures, the following trusts may be relevant in specialised cases:
A range of nuanced questions arises when deciding between family trust structures. Here are answers to the most relevant based on user queries:
A discretionary trust is often preferred, as the trustee—not individual beneficiaries—owns the trust assets. This can shield them from personal liabilities, subject to clawback rules in insolvency or family law disputes.
Yes, within limits. Assets held in a discretionary trust may be protected from creditor claims against a beneficiary, as the beneficiary has no fixed entitlement until a distribution is made.
In a unit trust, beneficiaries have enforceable proprietary rights tied to their units. In a discretionary trust, beneficiaries have only a mere expectancy until the trustee exercises discretion.
Yes, but they are complex and frequently scrutinised by the ATO. They require legal advice during establishment and ongoing compliance with trust law and taxation provisions.
Yes. Many high-net-worth families use a combination of trusts (e.g., one for investments, one for children, one testamentary trust) to align with legal, tax, and succession goals.
Understanding the different types of family trusts under Australian law is essential for making informed decisions about wealth protection, tax planning, and succession. Each trust—be it discretionary, unit, hybrid, testamentary, or a special disability trust—has unique legal obligations and strategic advantages.
Before selecting a structure, consult with a legal or tax professional to ensure the trust is aligned with your objectives and compliant with Australian legislation. If you are unsure of how to find a good family law lawyer, LegalFinda.com.au connects individuals and families with experienced trust lawyers and estate planning professionals across Australia.
The LegalFinda Editorial Team is composed of qualified Australian solicitors, legal researchers, and content editors with experience across family, property, criminal, and employment law.
The team’s mission is to translate complex legislation into clear, reliable guidance that helps everyday Australians understand their legal rights and connect with the right lawyer.