What Is a Family Trust in Australia and How Does It Work?

What a family trust is

A family trust — more precisely, a discretionary family trust — is a legal structure in which a trustee holds assets for a defined class of beneficiaries (typically family members and related entities). The trustee has discretion each year to decide who receives income and capital, within the terms of the trust deed.

Why families use them

• Asset protection — assets in the trust are not owned by any individual family member
• Income streaming — income can be distributed each year to beneficiaries on lower marginal rates
• Estate and succession planning — control passes via the appointor role, not the will
• Business structuring — a common holding structure for trading entities and investment assets

Key roles in a family trust

• Settlor — the person who nominally establishes the trust (rarely relevant afterwards)
• Trustee — usually a corporate trustee, holds legal title and administers the trust
• Appointor — has power to remove and appoint the trustee; the true seat of control
• Beneficiaries — the class who may benefit, usually family members and related entities

Limitations and pitfalls

Family trusts do not eliminate tax — the ATO scrutinises trust distributions under section 100A and Division 7A. Trusts also have vesting dates and can be expensive to unwind. Getting the deed, the appointor succession, and the distribution strategy right from day one saves significant cost later.

Envision Legal sets up and reviews family trusts for Australian business owners.

This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances. For enquiries, contact Envision Legal.