Estate planning isn’t just about distributing assets—it involves ensuring legal clarity, tax efficiency, and peace of mind. In Australia, two trust structures often considered are the family trust and the living trust (also referred to in some contexts as an inter vivos trust).
Family Trusts are widely used in Australia to manage and protect family wealth, offering tax flexibility and shielding assets from creditors. Meanwhile, Living Trusts—also known as inter vivos trusts—focus on simplifying estate transfers by avoiding probate and ensuring privacy.
Both serve important but distinct purposes in estate planning.
Choosing between them—or combining both—can shape how your legacy is controlled, protected, and passed on with clarity.
What Is a Family Trust?
A family trust is a legal structure, also known as a discretionary trust, where a trustee holds assets or a family business for the benefit of family members (beneficiaries). The key feature is that the trustee has the discretion to decide how much income and capital gains to distribute to which beneficiaries each year, often to achieve tax efficiency and protect family assets from financial risks or lawsuits:
- A trust deed appoints a trustee to hold assets for designated beneficiaries (usually family members).
- Trustee discretion allows flexible allocation of income and capital—beneficiaries have no fixed entitlement.
Primary benefits of Family Trust include:
- Tax optimization: Enables streaming of income to beneficiaries with lower marginal tax rates. However, undistributed income can be taxed at high rates.
- Asset protection: Trust assets are segregated from personal liabilities, shielding them from creditors or legal disputes.
- Flexible succession: Ideal for evolving family businesses or inter-generational estate transfer.
But it's not without administrative responsibilities—the trustee must navigate tax filings, discretionary decisions, and maintain compliance under ATO guidelines.
What Is a Living Trust?
A living trust is a legal arrangement where assets are transferred to a trustee, who manages them for the benefit of beneficiaries, established during the settlor's lifetime (also known as an inter vivos trust). The person who creates the trust (the settlor) can also be the initial trustee, retaining control of the assets.
Living trusts are used in estate planning to manage assets, distribute wealth after death, and can help avoid the probate process, which is the legal process of validating a will and distributing an estate. There are two main types: revocable living trusts, which can be changed or canceled, and irrevocable living trusts, which cannot.
Key advantages of a Living Trust include:
- Probate avoidance: Streamlined asset transfer without court involvement.
- Privacy: Trust arrangements remain confidential, unlike wills processed publicly.
- Continuity: Grants smoother administration in cases of incapacitation or for long-term legacy planning.
However, assets in living trusts remain part of the settlor’s estate for tax and creditor considerations, and setup carries legal and administrative costs.
Family Trust vs Living Trust:Key Differences
Although both structures aim to safeguard assets and support beneficiaries, they serve distinct purposes and operate under different rules. Understanding these contrasts will help you decide which trust best fits your estate planning goals.
- Purpose and Scope
- Family Trust: Designed to manage family assets with discretionary distribution among beneficiaries.
- Living Trust: Primarily facilitates smooth, private transfer of estate assets at death.
- Control During Lifetime
- Family Trust: Trustees—often independent—manage assets with flexibility.
- Living Trust: Settlor typically retains full control as trustee.
- Probate Implications
- Family Trust: Not relevant for probate; separation from estate.
- Living Trust: Prevents probate by directly transferring ownership to beneficiaries.
- Tax and Creditor Exposure
- Family Trust: Offers tax planning and protection from personal liabilities.
- Living Trust: Assets still included in settlor’s estate and accessible to creditors.
- Beneficiary Structure
- Family Trust: Tailored distributions among family members, including business wealth.
- Living Trust: Broader flexibility in naming beneficiaries—can include charities, friends, pets.
Not sure which trust structure fits your needs? With so many variables—tax, probate, asset protection—it’s easy to feel overwhelmed. That’s where LegalFinda helps. We connect you with experienced estate planning lawyers across Australia who can guide you through the right choice for your family.
Combining Both Structures—A Strategic Approach
For many Australian households, a robust estate plan includes both:
- A family trust to manage and protect family wealth during life.
- A living trust to facilitate efficient transfers and avoid probate at death.
This combination offers layered protection, preserves flexibility, and addresses both tax and administrative concerns—especially useful for families with complex assets or blended structures.
Costs of Setting Up and Maintaining Family Trust and Living Trust
When choosing between a family trust and a living trust, it’s important to weigh not just the legal and strategic benefits, but also the financial commitments involved. The cost profile of each trust varies based on complexity, ongoing administration, and the level of professional support required.
Family Trust Costs
Setup Costs
- Establishing a family trust usually requires professional legal and accounting advice.
- Typical setup costs range from $1,500 to $5,000+, depending on whether an individual or corporate trustee is appointed and the complexity of the trust deed.
- Some states and territories may also impose stamp duty on the trust deed, though this amount is relatively modest compared to overall setup costs.
Ongoing Costs
- Accounting and tax compliance: Generally $1,000 – $3,000 per year, depending on the number of beneficiaries and the trust’s activities.
- Corporate trustee costs: If used, there will be annual regulatory fees (e.g. ASIC filings).
- Professional advice may also be required for complex distributions or asset protection strategies.
Living Trust Costs
Setup Costs
- Creating a living trust typically involves drafting a comprehensive trust deed and transferring assets into the trust.
- Legal fees generally range from $2,000 to $6,000, reflecting the more extensive documentation required to ensure smooth estate transfers.
- Costs may increase if multiple assets, business holdings, or cross-border considerations are involved.
Ongoing Costs
- A living trust usually has minimal annual maintenance costs compared to a family trust.
- Because the settlor often acts as their own trustee during life, there are fewer accounting and reporting requirements.
- Professional advice may still be necessary when updating the trust deed or preparing for asset transfers upon death.
Every family’s situation is different. LegalFinda matches you with a trusted lawyer who can explain the real tax and cost implications of your estate plan—so you avoid surprises and make confident decisions.
How to Choose Family Trust vs Living Trust?
Selecting between a family trust and a living trust depends on your financial goals, family circumstances, and long-term planning priorities. Each structure offers distinct advantages, so your choice should be guided by what matters most to you.
1. Clarify Your Objectives
- Wealth Management During Life: If your focus is on managing family wealth, minimising tax, or protecting assets during your lifetime, a family trust may be the stronger option.
- Estate Transfer After Death: If your main priority is ensuring a smooth, private transfer of assets after you pass away, a living trust could be more suitable.
2. Consider Control and Flexibility
- Family Trust: Trustees—often independent or corporate—control the management and distribution of assets. Beneficiaries have no fixed entitlement.
- Living Trust: You, as the settlor, generally remain the trustee and maintain control over your assets until death, offering more personal oversight.
3. Think About Privacy and Probate
- Family Trust: Operates outside of probate but is mainly designed for wealth management rather than estate transfer.
- Living Trust: Avoids probate, ensuring your estate is passed on confidentially and without court involvement.
4. Evaluate Costs and Maintenance
- Family Trust: Lower initial setup compared to a living trust but higher annual maintenance due to accounting, tax, and regulatory requirements.
- Living Trust: Higher upfront legal costs, but minimal ongoing maintenance during your lifetime.
5. Assess Beneficiary Needs
- Family Trust: Ideal if you want flexible distributions to family members, especially where there are complex family or business interests.
- Living Trust: Suitable if you want to provide for a wider range of beneficiaries, including charities or non-family members, with simplicity.
6. Explore a Hybrid Approach
In some cases, using both structures provides the best of both worlds:
- A family trust for managing assets and tax planning during life.
- A living trust for seamless transfer of wealth upon death.
FAQs about Family Trust and Living Trust
Below are precise responses to frequently asked questions about family trust vs living trust, informed by extensive search analyses and tailored to Australian legal contexts. These FAQs address key concerns, offering actionable insights to guide effective estate planning decisions.
What Is the Difference Between a Family Trust and a Living Trust?
The difference between a family trust and a living trust centers on purpose: family for family income distribution, living for revocable asset management.
Living Trust vs Family Trust: Which Is Better for Estate Planning?
In living trust vs family trust for estate planning, living avoids probate, family optimizes taxes.
How Does a Family Trust Protect Assets from Creditors?
A family trust protects assets from creditors by separation, unlike revocable living trusts' vulnerability.
What Are the Costs Associated with Setting up and Maintaining a Living Trust?
Costs for living trusts range $1,000-$3,000 setup, minimal maintenance.
How to Choose Between a Revocable and Irrevocable Living Trust?
Choosing revocable living trusts allows changes, irrevocably enhances protection.
What Are the Probate Implications of Choosing a Family Trust?
Family trusts imply no probate for held assets.
Can I Use a Family Trust to Avoid Inheritance Tax?
Family trusts avoid direct inheritance tax via CGT strategies.
How Does a Living Trust Work with a Special Needs Trust?
Living trusts integrate with special needs for asset protection.
What Are the Legal Requirements for Establishing a Family Trust in New York?
Legal requirements for family trusts in New York parallel Australian deed and registration, but focus ATO.
Living Trust vs Family Trust: Which Is Easier to Administer?
Living trusts are easier to administer post-setup.
How Does a Family Trust Affect Medicaid Eligibility?
Family trusts affect Medicaid via asset attribution, similar to Centrelink.
What Are the Common Mistakes People Make When Setting up a Family Trust?
Common mistakes include inadequate deeds.
Revocable vs Irrevocable Family Trust: Which One Offers Better Asset Protection?
Irrevocable family trusts offer better protection.
How to Avoid Common Legal Pitfalls When Setting up a Living Trust?
Avoid pitfalls by professional drafting.
Family Trust vs. Living Trust: Which Is More Flexible for Future Changes?
Living trusts are more flexible for revocations.
Can a Family Trust Be Used to Minimize Estate Taxes for a Large Inheritance?
Yes, through CGT deferrals.
Embracing family trust vs living trust options inspires confident estate strategies for Australians. Contact LegalFinda's experts to customize your plan today.
Final Thoughts
Both family trusts and living trusts play essential roles in modern Australian estate planning. Family trusts enable strategic asset management and protection during life, while living trusts streamline inheritance and privacy. For comprehensive estate security, a combination of both—and backed by expert legal advice—is wise.
Legal Finda connects individuals with top-tier estate lawyers to design tailored trust strategies that protect assets, respect evolving family needs, and ensure legacy continuity with clarity and confidence.
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