Are you thinking about setting up a family trust (also known as a discretionary trust) in Australia but not sure where to start? You’re in the right place!

A family trust can be a great way to protect your assets, manage wealth, and the setup process doesn’t have to be complicated, if you follow the right steps. We’re here to help you navigate the process of a family trust setup in no time. Keep reading!

What is a Trust?

A trust is a legal arrangement where one person or entity manages assets for someone else’s benefit.

Before diving into family trusts and how to set them up, it’s important to understand how trusts work in general.

• The trustee is the person or organisation that manages the trust and holds the assets.
• The beneficiaries are the people who receive the benefits from the trust, such as money or property.

Trusts can be a smart way to manage your finances, especially for small business owners or families looking to distribute assets effectively.

A trustee can also be a beneficiary of the trust, but they cannot be the only one.

What Is a Family Trust?

A family trust (also known as a discretionary trust) is a legal arrangement set up to manage and protect assets for family members.

Through the family trust, a trustee (the person or company managing the trust) holds and controls assets on behalf of the beneficiaries (the family members who benefit from the trust).

Ever wondered why it’s also referred to as a discretionary trust, or what discretion even means?

The term discretionary means that the trustee has the freedom to decide:

• Which beneficiaries receive assets from the trust
• How much each beneficiary gets
• How income and capital are distributed

Why Are Family Trusts Created?

A family trust is created for the benefit of family members.

Some key reasons for creating a family trust include:

1. Holding Family Assets & Ensuring Asset Protection

A family trust offers a secure way to protect your assets while maintaining their use and enjoyment. By transferring legal ownership of assets to the trust, you safeguard them from potential risks such as creditors, lawsuits, or unexpected financial challenges.

For example, if your family home is placed in a trust, you no longer own it personally. However, as long as the trust deed permits, you can continue living in the property, ensuring both security and control over your assets.

2. Protecting Assets from Claims and Creditors

Family trust can also be used to protect valuable assets from potential claims and creditors.

For example, a family trust can be used to shield your family home from risks associated with the failure of a business venture.

3. Tax Planning and Tax Benefits

A family trust can help you save on taxes by letting the family trustee and beneficiaries arrange their tax matters in a way that reduces their tax bills, following the rules set by the Australian Taxation Office (ATO).

The trustee decides who gets the money and assets from the trust. This can be useful for someone with a high income, as they can give some of the income to family members who have lower incomes, which means paying less tax.

For example, if the trust earns rental income from a property, it can be given to family members who earn less, so they pay less tax. The same can be done with dividends from shares owned by the trust.

4. Other Reasons for Creating a Family Trust

Family trusts serve various purposes beyond asset protection, including the following key reasons:

• A family trust can help prevent disputes and challenges to a family member’s will, ensuring a smoother transfer of assets.
• Family trusts are commonly used to hold assets or operate a family business, providing a structured and organised approach to wealth management.
• For family business owners, a family trust allows each member to be a beneficiary while remaining uninvolved in the day-to-day operations.
• Parents can use a family trust to distribute wealth more precisely to children, ensuring fair and controlled allocation.
• Transferring assets between generations through a family trust can be done in a tax-efficient manner, helping preserve wealth within the family and potentially preventing the need to sell assets.
• It offers an effective tax structure, enabling the distribution of income to beneficiaries with lower marginal tax rates, maximising overall financial efficiency.

Setting Up a Family Trust (2025 Update)

1. Choose Your Trustee(s)

The first critical step when setting up a family trust is deciding, ‘Who will be my trustee(s)?’

A trustee is the individual or legal entity responsible for managing the family trust and controlling its assets.

For example, this person or entity will legally hold the title to trust property on behalf of the beneficiaries.

Selecting a trustee can be a complex decision, as it requires balancing personal preferences with the needs of the trust.

You can choose from different types of trustees, depending on your preferences:

• Non-professional Trustee: A trusted family member or friend who may have a personal connection to the trust.
• Professional Trustee: A legal, financial, or investment professional, such as a lawyer, accountant, or investment advisor, who brings expertise to managing the trust.
• Corporate Trustee: A corporate trustee, such as a bank or trust company, can offer a more formal structure and professional management of your trust.

It’s essential to choose someone who is trustworthy and reliable, and who will act in the best interests of the beneficiaries.

2. Choosing Your Beneficiaries

The next step in setting up a family trust is to choose your beneficiaries.

Beneficiaries are individuals, groups, or entities who will benefit from the trust, money or property. In simple terms, beneficiaries have beneficial ownership of the trust assets.

Here are some key points to consider when choosing beneficiaries for your family trust:

• Beneficiaries have the right to be considered when the trustee distributes trust funds or property.
• Beneficiaries may have a right to trust income, property, or other assets depending on the terms of the trust deed.
• The trust deed outlines the extent of each beneficiary’s entitlement, which could include a fixed amount, a percentage of the trust’s value, or discretion granted to the trustee.
• The trust deed may specify which groups or individuals are eligible to be beneficiaries. This can include family members, corporations, or even foreign individuals.
• While trustees have legal ownership of trust assets, beneficiaries hold the beneficial ownership, meaning they enjoy the benefits.

Beneficiaries can also include:

• Family member. For example, spouses or primary relatives such as kids
• Corporate bodies
• Foreign individuals
• Charitable organisations

3. Drafting a Discretionary Trust Deed

The third step in setting up a family trust is drafting a legally binding discretionary trust deed. This deed is crucial for making the trust official, as it serves as a legal document that outlines the structure and management of the trust.

Key elements that should be included in your family trust deed are:

• Establishing the trust
• Identifying the relevant beneficiaries
• Outlining the distribution of income and capital to the beneficiaries.
• Steps to wind up the trust
• Appointing trustees including their powers, and remuneration
• Process for appointing and removing trustees in the future.
• Responsibility for maintaining financial records.
• Indemnity clause

4. Settling the Family Trust

The fourth step in setting up a family trust is the settlement process. But why is settling the trust so important? Settlement is the key legal action that officially establishes your trust.

To complete this process, the settlor must sign the trust deed and provide a nominal fee.

The settlor’s role includes:

• Signing the trust deed and formally settling the trust property.
• The settlor creates the trust deed for the benefit of the beneficiaries. 
• Providing an initial sum to the trustee (usually $10).
• Ensuring the trust is legally established for the beneficiaries.

It’s important to note that the settlor should not be one of the trust’s beneficiaries and should be someone unrelated to the beneficiaries, such as a close friend or advisor.

5. Signing the Family Trust Deed

The next involves executing the trust deed. Here’s a breakdown of the process:

• The settlor is responsible for signing the family trust deed, initiating the trust creation process.
• Following the signing, the appointed trustees must hold a meeting to formalise their role and agreement to act as trustees of the trust.
• The trustees will then accept the responsibilities and obligations outlined in the trust deed.

We recommend to hold this meeting in a formal setting, such as in person, to ensure all parties are present and the signing process is properly witnessed.

However, this can also happen electronically through an audiovisual link with new legislation in place.

6. Pay Stamp Duty

Once your family trust is established and signed, it may be necessary to stamp the family trust deed.

The stamp duty requirements for trusts can vary by state and territory, so it’s essential to understand the specific regulations that apply in your region.

Stamp duty rates for non-land assets in discretionary trusts are as follows:

1. NSW

• • Mailing Address: Needs to be stamped by a registered OSR lodger
  • Cost: $750 (with $10 for each additional stamped copy)
  • Additional Info: Stamp within 3 months from the date of execution

2. VIC

• • Mailing Address: Needs to be stamped by a registered Duties Online Agent
  • Cost: $200 (no charge for additional copies)
  • Additional Info: Stamp within 3 months from the date of execution

3. ACT

• • Mailing Address: Stamping not required
  • Cost: Stamp duty not payable
  • Additional Info: No time limit for stamping

4. QLD

• • Mailing Address: Stamping not required
  • Cost: Stamp duty not payable
  • Additional Info: No time limit for stamping

5. SA

• • Mailing Address: Revenue SA
  • Cost: Stamp duty not payable, but deeds may still be stamped ‘exempt’
  • Additional Info: No time limit for stamping

6. WA

• • Mailing Address: Stamping not required
  • Cost: Stamp duty not payable
  • Additional Info: No time limit for stamping

7. NT

• • Mailing Address: Commission of Taxes
  • Cost: $20 ($5 per additional copy)
  • Additional Info: Pay via cheque, cash, or EFTPOS

8. TAS

• • Mailing Address: SRO Tasmania
  • Cost: $50 (no charge for additional copies)
  • Additional Info: Pay via cheque or EFTPOS

Note: Rates and regulations may change, so it’s crucial to verify the latest stamp duty details through the relevant authority.

7. Apply for an ABN and TFN for the Family Trust

Once your family trust is established, it’s essential to apply for an Australian Business Number (ABN) and a Tax File Number (TFN). These are necessary for the trust to operate legally and manage its tax obligations.

8. Open a Separate Family Trust Bank Account

Congratulations, you’re almost done! The final step in setting up your family trust is to open a bank account in the trust’s name. This account should be opened in the trustee’s name, specifically as ‘Trustee for [Family Trust Name].’

Be sure to make the initial deposit into the account with the settlement sum. This amount must be in the account before any other deposits or transactions are made. Keeping the trust’s finances separate from personal accounts is crucial for legal and financial clarity.

Talk to Your Accountant:

However, some things may be tricky and could leave you wondering. If that happens, it would be best to talk to your accountant as he/she knows your personal situation and can guide you through the requirements for setting up a family trust.