Estate planning is not only about deciding who inherits assets but also about how those assets are protected, taxed, and distributed. In Australia, rising property values, complex family dynamics, and tax considerations mean that a “simple will” may no longer be enough. Families increasingly weigh up whether a family trust or a will — or a combination of both — offers the most secure path forward.
According to the Australian Bureau of Statistics, blended families are steadily increasing, and disputes over estates are also on the rise. A carefully considered plan can prevent family conflict, protect wealth from creditors, and ensure loved ones are provided for in a tax-effective way.
What Is a Family Trust?
A family trust, also called a discretionary trust, is a legal structure where:
- Trustees hold and manage assets.
- Beneficiaries benefit from income or capital distributions.
- Trust deeds outline rules and powers of trustees.
The defining feature of a family trust is flexibility. Trustees are not bound to distribute assets equally; instead, they can tailor distributions based on family members’ needs or circumstances. For example, income might be allocated to adult children with lower tax rates, reducing the family’s overall tax liability.
Other key benefits include:
- Continuity of wealth: Assets stay in the trust beyond one generation, preserving wealth for children and grandchildren.
- Protection from claims: Because assets are not personally owned, they are generally shielded from bankruptcy, divorce, or lawsuits.
- Tax planning: Trusts allow strategic income splitting and capital gains management.
However, trusts come with ongoing responsibilities: annual tax returns, trustee compliance, and higher administrative costs compared to a will. For high-value estates, these are often outweighed by long-term benefits.
What Is a Will?
A will is a legal document that specifies how a person's assets and property should be distributed after their death, and it can also include other important instructions, such as the appointment of an executor, the care of minor children, and funeral arrangements. To be legally valid, a will must generally be in writing, signed by the person making it, and witnessed by two adults who also sign the document.
Wills are simpler and cheaper to create than trusts, but they only take effect after death. Before distribution, a will must usually go through probate, a court-supervised process that validates the will and oversees administration.
Limitations of wills include:
- Public disclosure: Once in probate, wills become public documents.
- No asset protection: Assets in a will can be claimed by creditors, estranged relatives, or ex-partners.
- Tax inflexibility: Unlike trusts, wills don’t allow for dynamic tax planning.
Still, a will is essential for all Australians, even those with trusts, to ensure unallocated assets and guardianship decisions are clearly covered.
Key Differences: Family Trust vs Will
When considering the best way to protect and transfer wealth, many Australians weigh up the choice between establishing a family trust or relying on a will. While both structures play a vital role in estate planning, they operate in very different ways and carry unique implications for control, taxation, privacy, and asset protection. Understanding these differences is essential before deciding which option aligns with personal circumstances and long-term goals.
- Timing of Operation
- Family Trust: Operates during life and continues after death.
- Will: Only becomes effective after death.
- Probate Requirement
- Trust: Avoids probate, saving time and costs.
- Will: Requires probate, which may delay distributions.
- Privacy and Exposure
- Trust: Confidential and shielded from public record.
- Will: Filed in probate, making details public.
- Control and Flexibility
- Trust: Trustees decide allocations based on circumstances.
- Will: Fixed distribution instructions, limited flexibility.
- Asset Protection
- Trust: Safeguards assets from creditors, disputes, and divorces.
- Will: Leaves assets exposed to claims.
- Tax Efficiency
- Trust: Enables income splitting and strategic CGT management.
- Will: No built-in tax planning benefits.
- Complexity and Cost
- Trust: More expensive to establish and maintain.
- Will: Easier and cheaper, suitable for simple estates.
Determining whether a family trust or will suits your situation depends on the complexity of your estate, asset protection needs, and financial goals. A carefully structured trust can provide control and flexibility, while a will may be sufficient for simpler arrangements.
For tailored guidance on whether a family trust or will is right for you, connect with Legal Finda’s network of trusted estate planning lawyers. With expert advice and clear strategies, you can secure your legacy and protect your family’s future.
How to Choose?
Selecting the right estate planning tool depends on your goals, family dynamics, and the nature of your assets. The following considerations—rooted in Australian legal practice—offer a framework for informed decision-making:
1. Identify Your Planning Objectives
- Control & Flexibility: If preserving control, flexibility, and adaptable income distribution is a priority, a family trust provides sharp advantages.
- Simplicity & Final Wishes: A will is best if the requirement is straightforward—naming guardians, directing asset distribution, and keeping fees low.
2. Assess Estate Complexity
- Complex Estate or Blended Family: Trusts provide a structured way to manage intergenerational wealth, accommodate diverse family arrangements, and minimize disputes.
- Modest Assets with No Dependents: A simple will may offer sufficient clarity and legal protection without added complexity.
3. Weigh Tax Implications
- Tax Planning Needs: Family trusts allow tax-efficient income splitting among beneficiaries in varying tax brackets.
- Minor Beneficiaries: Wills that establish testamentary trusts can offer tax benefits, particularly where inheritances are used to care for minors or vulnerable individuals.
4. Consider Probate and Privacy Preferences
- Avoiding Probate: Family trusts bypass probate entirely, offering privacy and speed.
- Acceptance of Probate: If public administration is acceptable and cost concerns dominate, a will might suffice.
5. Review Asset Protection Needs
- Protection from Claims: Trust assets remain separate from personal estate, offering greater protection against creditors or during divorce settlements. Legal precedent—such as Kennon v Spry—underscores the resilience of discretionary trusts in Australian family law contexts
- Direct Exposure: Assets distributed via a will lack this protective layer and may become vulnerable to claimants.
6. Evaluate Cost and Administration Requirements
- Investment in Trust Management: Setting up and maintaining a family trust involves legal and accounting costs, but may be justified by its long-term benefits.
- Low Setup Cost: Wills are more affordable and administratively manageable, though probate can introduce delayed expenses.
7. Plan for Incapacity or Competency Concerns
- Ongoing Asset Management: A trust ensures assets are managed in real-time—even during periods of ill health or incapacitation.
- Posthumous Direction Only: Wills take effect only after death and don’t offer interim management provisions.
Cost: Family Trust vs Will
Cost is one of the most decisive factors when comparing a family trust with a will. Each structure involves different upfront investments and ongoing expenses, which can significantly influence long-term value and affordability.
Family Trust: Setup and Ongoing Costs
Initial Setup
- Legal or Accounting Fees:
- Family trust with an individual trustee: around $1,500 – $2,500
- Family trust with a corporate trustee: often $2,500 – $5,000+, depending on complexity and the level of legal advice required.
- Stamp Duty: Ranges from $20 – $500, depending on state or territory regulations.
- Corporate Trustee Incorporation: If a corporate trustee is used, additional business registration and service fees typically add $700 – $1,400.
Typical Setup Range:
- $1,500 – $2,500 (individual trustee)
- $2,500 – $5,000+ (corporate trustee and legal advice)
Ongoing Annual Costs
- Accounting and Tax Compliance: Approximately $1,000 – $3,000 per year for trust tax returns and compliance.
- ASIC Annual Fee: If a corporate trustee is in place, expect about $321 per year.
- Professional Advice: Strategic tax or distribution planning may require additional advisory costs annually.
Will: Setup Costs
- DIY Will Kits: Around $30, but carry a high risk of being invalid if executed incorrectly.
- Public Trustee Services: May provide low-cost or even free wills for eligible individuals.
- Solicitor-Prepared Wills:
- Simple wills: approximately $600
- Complex wills or those involving larger estates: $3,000+
- Estate Planning Packages: Bundled services including a will, Enduring Power of Attorney, and other documents typically cost $1,200 – $2,000+ for individuals or couples.
- Testamentary Trust Wills: For high-value or complex estates, costs can range from $2,500 – $5,500.
Best Practice: Using Both Tools Together
For most Australians, the strongest estate plan involves a combination of a family trust and a will. Each serves a different role:
- A family trust safeguards and manages wealth during life, ensuring flexibility and asset protection.
- A will ensures any assets outside the trust are captured and distributed according to wishes.
Common strategies include:
- Pour-over wills: Direct any stray assets into the trust upon death.
- Testamentary trusts: Created under a will, these act like mini-trusts for beneficiaries, offering tax efficiency and asset protection for vulnerable heirs or minors.
Estate lawyers often recommend reviewing plans regularly, particularly after major life events such as marriage, divorce, or the sale of significant assets.
FAQs
Below are targeted responses to common questions surrounding family trust vs will, derived from extensive search analyses and aligned with Australian legal frameworks. These FAQs address practical concerns and provide clarity on key decision points for effective estate planning.
What Is the Difference Between a Family Trust and a Will?
The difference between a family trust and a will centers on timing: trusts manage assets during life and beyond, offering protection, while wills dictate post-death distribution via probate.
Family Trust vs Will: Which Is Better for Tax Purposes?
In family trust vs will for tax purposes, trusts enable income splitting and CGT deferrals, often outperforming wills' direct tax exposures under ATO guidelines.
How Does a Family Trust Protect Assets from Creditors?
A family trust protects assets from creditors by holding them in a separate entity, insulating from personal liabilities, unlike wills which offer no lifetime safeguards.
What Are the Different Types of Family Trusts?
Different types of family trusts include discretionary for flexible distributions and unit trusts for fixed shares, each suited to specific asset strategies.
How to Choose Between a Revocable and Irrevocable Family Trust?
Choosing between revocable and irrevocable family trusts depends on control needs: revocable allows changes but offers less protection, irrevocable enhances shielding at the cost of flexibility.
Can a Family Trust Be Used to Avoid Inheritance Tax?
A family trust can be used to avoid inheritance tax by deferring CGT and utilizing exemptions, though Australia lacks direct inheritance tax, focusing on estate duties.
Will vs Trust: Which Offers Better Control Over Assets After Death?
Will vs trust for control post-death favors trusts, enabling conditional distributions over time, unlike wills' immediate transfers.
Family Trust vs Will: Which Is Easier to Establish?
Family trust vs will for ease of establishment favors wills for simplicity, requiring less documentation than trusts' deeds and transfers.
What Are the Potential Downsides of Using a Family Trust?
Potential downsides of using a family trust include setup costs, ongoing compliance, and ATO audits, balanced against benefits over wills.
In Summary
Choosing between a family trust and a will is not a binary decision. Trusts offer power, flexibility, and protection; wills provide simplicity, legal backing, and guardianship assurance. The most robust estate plan often involves both.
Legal Finda specialises in guiding clients through these options. Expert legal advice ensures that your estate structure aligns with your goals, protects your assets, and safeguards your family’s future.
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