What Is a Family Trust and Do You Need One? What is a Family Trust, and Do You Need One?

By Harry Moustakas, Managing Director & Caroline Galimi,Senior Accountant, Navigate Advisory

Quick Summary:
A family trust is a structure set up to hold a family’s assets, whether that’s a business, shares or property. They can be powerful for tax planning, asset protection and passing wealth to the next generation. But they’re not for everyone. They come with costs, compliance obligations and risks. Here’s what you need to know.

“Should we set up a family trust?”

It’s a common question we hear from clients.

The answer is almost always: it depends.

Family trusts get talked about at dinner parties and in business forums like they’re some kind of magic wand. “Just put it in a trust” is advice that gets thrown around as casually as “just buy property.” But like most things in financial planning, the reality is more nuanced than the headline.

With close to one million trusts now operating in Australia (according to ATO taxation statistics), they’re clearly a popular tool. But popular doesn’t always mean it’s right for you.

What Is a Family Trust?

Think of a family trust like a container. You place assets inside it – shares, a business, property – and a trustee (possibly you) manages the assets on behalf of the beneficiaries (usually your family members – this could also be siblings, nieces, nephews etc.).

A Family Trust is best used for two main reasons.

You’ve got a business. For example, you have a family business or a medium-sized business, or you have equity in a business. The profits flow into the trust so you can allocate for tax planning. It also gives asset protection to the shareholder.
Your family’s relatively wealthy. These days, that could mean $5 to $10 million in assets, you’ve got shares outside of the business and maybe property that’s fully paid off. You can place those assets in a family trust and hold them in a more efficient structure.

Who Needs a Family Trust (and Who Doesn’t)?

So how do you know if it applies to you? Here’s a quick checklist.

A family trust often makes sense if you:

Run a successful business and want to separate personal assets from business risk
Have a family with members in different tax brackets (think a high-earning specialist with a spouse on a lower income or adult children studying)
Own shares or property, or plan to build a portfolio over time
Want to plan for wealth transfer to the next generation while maintaining control
Are building significant wealth and want a layer of asset protection

A family trust probably isn’t for you if:

Your asset base is relatively small and the costs of running the trust would outweigh the benefits
You value simplicity and don’t want the administrative overhead
You and your family members are all in similar tax brackets, reducing the benefit of income distribution
You’re planning to invest in negatively geared property (trust losses get “trapped” – more on that below)

Setting up a family trust: the cast of characters

Setting up a family trust involves your solicitor, accountant and financial adviser working together to get the structure right from the start.

Your family that sits at the centre of the structure. Each person plays a specific role in how the trust operates.

Role	What they do
Settlor	An independent person (not a beneficiary) who establishes the trust with a small sum, usually $10. This is typically your solicitor. They set the trust in motion and then step aside.
Trustee	The person or company (usually you and your spouse/ partner) that legally owns and manages the trust assets. A corporate trustee (a company set up specifically for this purpose) is strongly preferred for asset protection and continuity.
Appointor	Holds the power to hire and fire the trustee. This is arguably the most powerful role in the whole structure.
Beneficiaries	The family members who can receive distributions from the trust. This typically includes your spouse, children and sometimes extended family.

How It Works in Practice: The Paterson Family

Meet Michael and Sarah Paterson (names changed for privacy). Michael runs a successful construction business. Sarah works part-time. They have two adult children: Emma, 22, who’s at university, and Jack, 19, who’s working part-time.

Michael was earning well into the top tax bracket. His shares in the construction business, a fully owned investment property and a share portfolio were all held in his personal name. Every dollar of business profit, rental income and dividends was being taxed at the highest marginal rate. His accountant was simply lodging returns. Nobody had looked at the bigger picture.

Working with our accounting and financial planning teams together, we helped the Patersons set up The Paterson Family Trust with a corporate trustee (Paterson Holdings Pty Ltd). Their solicitor acted as settlor to establish the trust. Michael was appointed as Appointor, giving him the power to replace the trustee if needed. Both Michael and Sarah were named as directors of the corporate trustee.

Michael’s shares in the family business, along with the investment property and share portfolio, are now held through the trust. Instead of all the business distributions, rental income and investment returns being taxed at Michael’s top rate, the trustee can distribute income each year across the family. Sarah, Emma and Jack are all in lower tax brackets, which means the family’s overall tax bill drops significantly.

The result. Tens of thousands saved in tax each year. Better asset protection, with the family’s wealth held in a structure that offers a layer of separation from personal liability. And a framework that supports their long-term plan to help Emma and Jack get on the property ladder without compromising their own retirement.

The Real Benefits of a Family Trust

Tax Planning Flexibility

This is the headline benefit. Each year, the trustee can decide how to distribute income among beneficiaries. If your spouse earns less than you, or your adult children are in lower tax brackets, income can be directed their way – legally reducing the family’s overall tax bill.

Capital gains can also be distributed strategically, and if assets are held for more than 12 months, beneficiaries can access the 50% CGT discount.

Important: The ATO is increasing scrutiny on trust distributions, particularly under Section 100A (the “reimbursement agreement” provisions). Distributions need to be genuine. You can’t distribute income to your daughter on paper while the money actually flows back to you. The ATO has named family trust elections as a key priority in their audit programs (RSM Australia).

Asset Protection

When assets sit inside a trust, they’re legally owned by the trustee – not by you personally. If a beneficiary faces a lawsuit or bankruptcy, the trust assets may be protected (provided the structure is genuine and properly maintained).

This is particularly relevant for business owners and medical professionals who face higher liability exposure.

Estate Planning and Wealth Transfer

A family trust can help pass wealth to the next generation in a controlled way. Unlike a Will, a family trust has longevity. When someone passes away, the trust doesn’t cease. It continues. You decide how and when distributions are made, and assets can avoid probate entirely.

Say a family has built $20 million in assets. The parents are winding down and want to keep gifting to their kids, grandkids, nieces, nephews. The whole bloodline. They place shares, investments and property into the trust and distribute income every year in a controlled, tax-effective way.

When the parents are ready to step back, or when they pass away, the next generation takes over as trustees. The structure keeps running.

No Contribution Limits

Unlike superannuation, trusts don’t have caps on how much you can put in. This gives you another vehicle to build wealth outside the super system – useful if you’ve already maximised your super contributions and want to keep building.

The Other Side: What Can Go Wrong

Here’s where the dinner party advice falls apart. Trusts aren’t a set-and-forget magic solution. They come with genuine downsides.

Losses Get Stuck

If your trust makes a loss – say from a negatively geared investment property – that loss stays trapped inside the trust. You can’t distribute it to beneficiaries to offset their other income. This is a critical consideration if you’re planning to buy properties that won’t generate positive cash flow for several years.

NSW Land Tax Hit

This one catches a lot of property investors off guard. In NSW, discretionary trusts face a significantly lower land tax threshold. While individuals get a $1,075,000 tax-free threshold, trusts with property may not qualify for this threshold at all. That means land tax can apply from a much lower base – sometimes from as low as $25,000 in land value, with an additional surcharge of 0.375% (Revenue NSW). For a trust holding an investment property, this can add thousands of dollars to your annual costs.

You Lose Direct Ownership

Once assets go into a trust, you no longer own them personally. The trustee does. For some people, this feels uncomfortable. And transferring assets out again later can trigger capital gains tax and stamp duty. So getting the structure right from the start matters.

Ongoing Costs and Compliance

A trust isn’t free to run. You’ll need annual tax returns, trustee resolutions before 30 June every year, financial statements and ongoing accounting fees. Set-up costs typically range from $1,000 to $3,000, with annual maintenance running $1,000 to $3,000 or more depending on complexity. If you use a corporate trustee (which is recommended), add ASIC registration and annual review fees on top.

Miss a distribution resolution before 30 June? The trustee gets taxed at the top marginal rate – currently 47%. That’s a very expensive mistake.

Family Law Isn’t Always on Your Side

A common misconception is that trust assets are completely protected in a divorce. They’re not. Family courts can – and do – include trust assets in the matrimonial property pool, especially if the trust is controlled by one party and used for family benefit. A trust adds a layer of consideration, but it’s not an impenetrable shield.

Why This Is Both an Accounting and Financial Planning Conversation

Setting up a family trust sits right at the crossover between accounting and financial planning. You need both perspectives working together.

From an accounting perspective: it’s about the tax structure. What are the tax implications of holding assets through the trust? How do you distribute income efficiently? What are the Division 7A risks if the trust interacts with a company? How do you handle the annual compliance – resolutions, returns, financial reporting?

From a financial planning perspective: it’s about the strategy. What assets should you hold in the trust? How does the trust fit with your retirement plans? What about asset protection? How does the trust work alongside your super, your insurance, your estate plan?

When both sides aren’t talking to each other, you end up with structures that are technically fine on paper but don’t actually serve your life goals. Or worse, you get a trust set up by an accountant who hasn’t considered the financial planning implications, or a financial planner who recommends a structure without understanding the tax consequences.

Ready to Talk About Whether a Trust Is Right for You?

At Navigate Advisory, we bring financial planning, accounting and business advisory together under one roof. That means the trust conversation happens with all the right people in the room – not in silos.

Because a family trust isn’t just a tax structure. It’s a building block for Your Great Life. And we want to make sure you’re building with the right materials.

Book an introductory chat at navigateadvisory.com.au/contact/

Navigate Advisory has offices in Balmain, Brighton-Le-Sands and Hurlstone Park.

Frequently Asked Questions

Expect to pay between $1,000 and $3,000 for the trust deed and initial setup, plus around $576 for ASIC registration if you’re using a corporate trustee (which is recommended). Stamp duty on the trust deed in NSW is currently $500, payable to Revenue NSW within three months. Annual running costs typically range from $1,000 to $3,000 for accounting, tax returns and compliance.

Yes, but with limits. Because trust assets are legally owned by the trustee (not you personally), they may be protected if a beneficiary faces bankruptcy or legal action. However, the protection isn’t absolute. If a court finds the trust was set up specifically to defeat creditors, or if it’s effectively controlled by one person for their own benefit, the separation may not hold up.

If the trustee doesn’t make a valid distribution resolution before 30 June, all trust income is taxed at the highest marginal rate of 47%. This is one of the most common and costly mistakes trustees make. Your accountant should have a system to remind you and prepare the resolution well before the deadline.

It depends on whether the property is positively or negatively geared. Positively geared properties can benefit from the trust’s income distribution flexibility. But negatively geared properties create losses that get trapped in the trust. You also need to factor in the NSW land tax impact – trusts face significantly lower thresholds than individuals, which can add thousands to your annual costs.

Yes, provided they are named as beneficiaries in the trust deed and the distributions are genuine. The ATO is increasingly scrutinising arrangements where adult children receive distributions on paper but the money flows back to parents. If you’ve made a Family Trust Election, distributions must stay within the nominated family group or you’ll face Family Trust Distribution Tax at 47%.

An individual trustee is a person who manages the trust. A corporate trustee is a company set up specifically to act as trustee. Corporate trustees are generally preferred because they offer better asset protection (the company’s liability is separate from your personal liability), simpler succession planning (directors change, the company continues), and clearer separation between personal and trust affairs. The trade-off is additional cost for ASIC registration and annual review fees.

Not completely. The Family Court can include trust assets in the matrimonial property pool, particularly if one spouse controls the trust or it has been used for the family’s benefit. A trust adds a consideration but it’s not an ironclad shield. If protecting assets from potential relationship breakdowns is a priority, you should discuss this specifically with your financial adviser and solicitor.

In NSW, a family trust generally has a maximum lifespan of 80 years from the date it’s established (known as the vesting date). At that point, the trust assets must be distributed to beneficiaries. This is usually more than enough time for most families, but it’s worth knowing when you’re thinking long-term.

Any advice provided in this article is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.

What Is a Family Trust and Do You Need One?