Is a family trust worth it in Australia? Costs, pros, cons and how to set one up

“Should we have a family trust?” is probably the question we hear most from business-owning families — usually right after a neighbour at a barbecue mentioned theirs. The honest answer is: sometimes it’s the single best structural decision a family makes, and sometimes it’s an annual accounting fee attached to a myth. This guide is the conversation we’d have with you, minus the video call.

What a family trust actually is

A family trust — technically a discretionary trust — is not a company and not a bank account. It’s a relationship, recorded in a deed, where a trustee (a person or, better, a company) holds assets for a group of beneficiaries (typically your family and related companies), and decides each year how the trust’s income is divided among them. Nobody “owns” the trust’s assets personally; the trustee controls them, and an appointor named in the deed holds the real power — the ability to hire and fire the trustee.

That discretion is the whole point. A company pays dividends according to shareholdings, fixed in advance. A trustee decides distributions after seeing how the year actually went — who earned what, who studied, who took parental leave — and can direct income accordingly, each and every year.

The genuine advantages

Income flexibility. Trust income distributed to a beneficiary is taxed at that beneficiary’s marginal rate. If one spouse runs the business and the other earns little, or there are adult children with low incomes, distributions can shift income from a 45%-bracket taxpayer to family members in the tax-free or 16–30% range. Across a family, that’s routinely worth thousands a year — legitimately, if the paperwork is done properly and the arrangements are genuine.

The 50% CGT discount. Unlike a company, a trust can pass capital gains through to individual beneficiaries with the general 50% CGT discount intact. For families holding appreciating assets — a business, an investment property, shares — this is often the decisive argument.

Asset separation. Assets held in the trust aren’t owned by any family member personally, which matters if someone in the family runs a risky business or works in a suable profession. It’s protection from future creditors and misadventure, not a magic shield — transfers made to defeat existing creditors can be unwound — but structured early, it’s real.

Succession without a sale. Control of a trust passes by changing the trustee and appointor — no asset sale, no CGT event on the assets, no stamp duty on a transfer that never happens. For family businesses planning a generational handover, that’s a quiet superpower.

The honest disadvantages

Losses are trapped. If the trust makes a loss, that loss stays inside the trust waiting for future income — it can’t offset your salary the way a personally-held negatively geared property can. Property investors chasing negative gearing are often worse off in a trust.

Some states tax trusts harder. Several states apply surcharge land tax rates or lower thresholds to property held in discretionary trusts, and deeds without a foreign-beneficiary exclusion can trigger foreign surcharges on top. If land is the plan, the state you buy in changes the answer.

Distributions must be real. The ATO looks hard at arrangements where income is distributed to a low-rate family member but the cash quietly benefits someone else — the “section 100A” cases. Distribution minutes signed by 30 June, entitlements actually paid or properly documented, and arrangements that match reality aren’t optional extras; they’re the difference between planning and a problem.

It costs money to run. A trust needs annual accounts, a tax return and distribution resolutions done properly. If the tax it saves doesn’t clear its running costs with room to spare, you don’t want it — and we’ll say so.

When a trust is worth it — a quick test

A family trust usually earns its keep when at least two of these are true: the family’s main earner sits in the top tax brackets; there are adult family members on genuinely lower incomes; the family holds (or plans to hold) appreciating assets it may one day sell; there’s meaningful risk to separate; or a generational handover is on the horizon. If none of those apply, keep it simple and revisit later — structures are easy to add and annoying to unwind.

How to set one up properly

The mechanics take days; the decisions deserve more thought than the mechanics. In order: choose the trustee (a special-purpose company is usually worth the extra cost), choose the appointor with succession in mind (this is the seat of power — think about who inherits it), have the deed prepared with the right beneficiary classes and a foreign-beneficiary exclusion where state surcharges make it wise, then register the ABN and TFN, open the bank account, and — if the trust will run a business or hold significant assets — document how money moves from day one.

Our trust set-up is

$690 ex GST including the deed, ABN and TFN, with the structure conversation first; adding a corporate trustee is a $1,090 company registration plus ASIC’s fee. If a trust should sit alongside a company — or the honest answer is that you don’t need one yet — the structuring review is where that gets worked out with your actual numbers on the table.

Questions we get about this

General information only — it doesn’t consider your circumstances and isn’t financial product advice. Get advice on your own position before acting; that’s literally what we’re for.