A family trust—formally known as a discretionary trust—is a legal structure recognised under Australian equity and taxation law. It enables a trustee to hold property or income on behalf of beneficiaries, distributing those assets in a manner determined by the trust deed.
Under Australian law, trusts are governed by a combination of statutory frameworks—including the Trusts Act 1973 (Qld), Trusts Act 1958 (Vic), and the Income Tax Assessment Act 1936 (Cth)—and longstanding principles of equity and fiduciary duty. Proper establishment ensures not only tax efficiency but also compliance with fiduciary obligations and asset protection objectives.
A well-drafted family trust can serve as a cornerstone for family wealth management, business succession, and intergenerational planning—provided it is correctly constituted and administered. For families beginning this process, finding a good family lawyer can ensure the trust deed and legal documentation meet all statutory and fiduciary requirements under Australian law.
Steps to Establish a Family Trust in Australia
Setting up a family trust in Australia involves several legally prescribed steps to ensure the trust is valid, enforceable, and compliant with both equity and taxation law. Each stage must be completed correctly to establish a lawful fiduciary relationship between the trustee and the beneficiaries.
1. Identify the Purpose and Choose the Structure
A family trust should be established with a clear legal purpose — usually asset protection, tax-effective income distribution, or estate and succession planning.
Once the objective is defined, determine whether the trustee will be an individual or a corporate entity. A corporate trustee offers greater liability protection and continuity under the Corporations Act 2001 (Cth).
2. Appoint the Key Parties
Four roles are essential under Australian trust law:
- Settlor: Establishes the trust by contributing an initial nominal sum.
- Trustee: Holds and manages the trust property according to the trust deed and fiduciary obligations.
- Appointor: Retains ultimate control by having the power to remove or replace the trustee.
- Beneficiaries: The individuals or entities entitled to receive income or capital distributions.
3. Draft and Execute a Legally Compliant Trust Deed
The trust deed is the foundation of the family trust. It defines the trustee’s powers, the scope of distributions, and administrative procedures.
Under Australian law, this document must be drafted by a qualified solicitor to ensure validity and compliance with state trust legislation such as the Trusts Act 1958 (Vic) or Trusts Act 1973 (Qld).
4. Settle the Trust
The settlor transfers a nominal amount (commonly $10) to the trustee to “settle” the trust. This act creates the fiduciary relationship in equity and gives the trust legal effect. The deed must be signed and properly witnessed.
5. Pay Applicable Stamp Duty
In certain jurisdictions — including New South Wales and Victoria — the execution of a trust deed attracts stamp duty, payable within a fixed period (for example, 3 months in NSW). Failure to pay on time may invalidate the deed or incur penalties.
6. Obtain a Tax File Number (TFN) and Australian Business Number (ABN)
Every trust must be registered with the Australian Taxation Office (ATO).
- The TFN is used for income tax purposes.
- The ABN is required if the trust carries on business or issues invoices.
7. Open a Dedicated Trust Bank Account
A separate bank account must be opened in the name of the trust. This ensures that trust funds are kept distinct from personal assets — a key element of compliance and fiduciary integrity.
8. Maintain Records and Ongoing Compliance
The trustee must keep detailed records of all financial transactions, prepare annual statements, and issue beneficiary distribution resolutions before 30 June each year.
Failure to document distributions correctly can result in income being taxed at the highest marginal rate under Division 6 of the Income Tax Assessment Act 1936 (Cth).
Legal Requirements and Documentation
The trust deed and appointment of trustee constitute the core legal documents for establishing a family trust. Supporting records include:
- Trustee declarations and acceptances of duty
- ATO registration confirmations
- Annual distribution statements and minutes
Each document reinforces the trust’s enforceability and evidences the trustee’s compliance with fiduciary obligations under equity.
Individual vs Corporate Trustee: Legal Implications
Choosing the right trustee structure carries legal and tax implications.
- Corporate Trustee: Offers limited liability, continuity of control, and clearer asset separation under the Corporations Act 2001 (Cth). Preferred for larger or multi-generational trusts.
- Individual Trustee: Simpler to establish but exposes personal assets to potential liabilities and can complicate succession planning.
LegalFinda’s network of experienced trust solicitors assists clients in selecting a trustee model that aligns with their asset protection and compliance objectives.
Cost Considerations
The cost of establishing a family trust generally includes:
- Legal drafting of the trust deed (typically $1,200–$2,500)
- Stamp duty (state-based)
- Registration and ongoing accounting fees
Trusts also incur annual maintenance expenses—such as ATO filings, bookkeeping, and legal reviews—to maintain lawful standing.
Taxation and Legal Compliance
Family trusts are flow-through entities under Australian tax law. Income is generally taxed in the hands of beneficiaries, not the trust, provided annual resolutions are properly executed.
Key Tax Considerations
- Income Tax: Beneficiaries are taxed at their marginal rates. Undistributed income is taxed at the top marginal rate (47%).
- Capital Gains Tax (CGT): Trusts can distribute gains, which may attract the 50% CGT discount for assets held over 12 months.
- Franking Credits: May be passed through to eligible beneficiaries receiving franked dividends.
Trustees must maintain accurate records to substantiate distributions under Division 6 of the Income Tax Assessment Act 1936 (Cth).
Asset Protection and Succession Planning
A family trust provides legal insulation by separating ownership and control. Because the trustee legally holds the property, beneficiaries’ assets are protected from creditors or bankruptcy claims.
From a succession perspective, trusts also ensure continuity of asset management. Unlike wills, trust assets do not form part of a deceased estate—avoiding probate and reducing dispute risk.
Ongoing Legal Obligations of Trustees
Trustees are fiduciaries bound by strict legal duties, including:
- Acting in good faith and for the benefit of beneficiaries
- Avoiding conflicts of interest
- Keeping proper accounts and acting in accordance with the deed
Breach of fiduciary duty can expose a trustee to personal liability and potential equitable remedies, including removal or compensation orders.
FAQs on Setting Up a Family Trust in Australia
Before proceeding, it’s essential to recognise that each trust arrangement is unique and must be legally tailored to its purpose. Below are some of the most common legal questions asked by Australian families and business owners.
Can I Legally Set Up a Family Trust Myself?
Yes, but it is strongly discouraged. Trust law is highly technical, and DIY deeds often fail to meet equity and tax requirements. LegalFinda recommends engaging a qualified solicitor to ensure validity and compliance.
What Documents Are Required?
A legally binding trust deed, appointment of trustees, and evidence of settlement are essential. Supporting documents such as ABN/TFN registration and trustee resolutions must also be maintained.
Is a Family Trust Suitable for Small Businesses?
Yes. A family trust can legally separate business operations from personal assets, enhancing protection and facilitating structured income distribution.
How Does a Family Trust Compare to a Company Structure?
A family trust prioritises control and flexibility in asset holding, whereas a company focuses on trading and liability limitation. Many structures combine both for maximum legal and tax efficiency.
What Are the Tax Benefits?
Properly managed trusts can legally reduce overall tax burdens by distributing income to beneficiaries in lower tax brackets—subject to ATO compliance.
Key Legal Takeaways
A family trust is not merely an administrative framework—it is a legal relationship grounded in fiduciary responsibility and statutory compliance. When properly drafted and maintained, it provides enduring advantages in asset protection, taxation, and estate planning.
For professional legal advice or assistance with establishing or reviewing your trust structure, contact LegalFinda — Australia’s trusted platform connecting families and businesses with qualified trust and estate lawyers.
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