If you’ve been researching ways to protect your family’s assets or minimise tax, you’ve probably come across the term “family trust.” But what exactly is a family trust, and how does it work in Australia?
At TSP Accountants, we’ve been helping Newcastle and Hunter Valley families establish and manage family trusts for over 43 years. Let’s break down what a family trust is, who’s involved, and whether one might be right for your situation.
What is a Family Trust? The Simple Definition
A family trust (also called a discretionary trust) is a legal arrangement where assets are held by trustees for the benefit of family members. Think of it as a special container that holds assets like property, shares, or business interests, managed by people you trust, for the benefit of your family.
The key word here is “discretionary” because the trustee has the flexibility to decide how and when to distribute income or capital to beneficiaries. This flexibility is what makes family trusts such a powerful tool for asset protection and tax planning.
Who’s Involved in a Family Trust?
Understanding the players in a family trust is crucial. There are typically four key roles:
The Settlor This is the person who establishes the trust by providing the initial contribution (usually a small amount like $10). The settlor can’t be a beneficiary and typically steps back once the trust is established. Their role is basically to kick things off.
The Trustee This is the person or company responsible for managing the trust assets and making decisions about distributions. The trustee has significant power and responsibility, so choosing the right trustee is critical. Many families use a corporate trustee (a company) for added asset protection and continuity.
In Newcastle, we often work with families who appoint a family company as trustee. This provides an extra layer of protection and makes succession planning much smoother.
The Beneficiaries These are the people who can potentially benefit from the trust. Typically, beneficiaries include family members like spouses, children, grandchildren, and sometimes broader family members. The trust deed (the legal document that governs the trust) specifies who can be a beneficiary.
The Appointor Sometimes called the “guardian” of the trust, this person has the power to hire and fire trustees. The appointor is often considered the person with ultimate control, even though the trustee makes day-to-day decisions.
How Does a Family Trust Actually Work?
Here’s a practical example from one of our Hunter Valley client families:
The Johnson family (not their real name) runs a successful business in Newcastle. They set up a family trust to hold their business interests and investment property. Each year, the business generates profit, and the trust receives this income.
The trustee (the family Pty Ltd company) then decides how to distribute this income among the beneficiaries. This year, they might distribute more to adult children who are studying (and have lower tax rates), while next year they might distribute more to parents when the children are working full-time.
The flexibility is the magic. The trustee can adapt distributions based on each family member’s circumstances, tax positions, and needs.
Why Do People Use Family Trusts?
While we can’t provide financial planning advice, we can explain why many Australian families choose to establish trusts:
Asset Protection Assets held in a properly structured family trust are generally protected from personal creditors. If a beneficiary faces financial difficulties or legal action, trust assets typically remain safe because they don’t personally own them.
Tax Planning Flexibility Family trusts allow income to be distributed to family members in lower tax brackets. This can result in significant tax savings compared to earning all income in one person’s name at higher marginal rates.
Succession Planning Family trusts can help with passing wealth to the next generation in a controlled manner. Rather than a lump sum inheritance, assets can remain in the trust structure with distributions made over time.
Business Structure Many family businesses use trusts as part of their structure. This can provide flexibility in how profits are distributed among family members who work in or invest in the business.
What Can a Family Trust Hold?
Family trusts in Australia can hold various types of assets:
- Business interests and trading profits
- Investment properties
- Share portfolios
- Cash and term deposits
- Intellectual property
However, the family home is typically NOT held in a family trust because you’d lose the main residence capital gains tax exemption. This is one area where you need proper advice about what should and shouldn’t go into the trust.
Family Trusts in NSW: What Newcastle Families Need to Know
If you’re based in Newcastle or the Hunter Valley, there are a few NSW-specific considerations:
Land Tax: Family trusts don’t receive the land tax threshold that individuals get, so investment properties held in trusts may have different land tax implications.
Stamp Duty: Transferring property into a trust can trigger stamp duty, so timing and structure are important.
Trust Deed Requirements: Your trust deed needs to be properly drafted and comply with NSW law. This isn’t a DIY job.
After 43 years of practicing in Newcastle, we’ve seen countless families benefit from well-structured trusts, and unfortunately, we’ve also seen the problems that arise from poorly structured ones. Getting professional advice upfront is essential.
Is a Family Trust Right for Your Family?
Family trusts aren’t for everyone. They make most sense when:
- You have a family business with multiple family members involved
- You’re generating significant investment income
- You want to protect assets from potential creditors
- You’re thinking about long-term wealth transfer to the next generation
- You have family members in different tax brackets
Family trusts are less suitable when:
- You have limited income or assets
- Your situation is simple with no family business or significant investments
- The costs (setup and annual compliance) outweigh the benefits
- You need immediate access to capital without trustee decision-making
The Reality Check: Family Trusts Come With Responsibilities
It’s not all smooth sailing. Family trusts require:
- Annual tax returns (even if no income is distributed)
- Proper record-keeping and minutes of trustee decisions
- Compliance with trust law and ATO requirements
- Ongoing accounting and legal costs
- Careful planning around the trust’s end date (usually 80 years from establishment)
What Does It Cost to Set Up and Run a Family Trust?
Setup costs typically include:
- Legal fees for the trust deed ($1,500 – $3,000+)
- ASIC fees if establishing a corporate trustee
- Initial accounting advice
Ongoing costs include:
- Annual accounting fees for trust tax returns
- Potential audit requirements
- Annual ASIC fees if using a corporate trustee
In our experience with Newcastle families, the benefits usually outweigh the costs when there’s significant business or investment income, but every situation is unique.
Next Steps: Getting Professional Advice
Family trusts are powerful tools, but they need to be set up correctly and managed properly. The Trust deed, the trustee structure, and how you use the trust all matter.
At TSP Accountants, we’ve been helping Newcastle and Hunter Valley families establish and manage family trusts since 1983. We understand the local context, NSW regulations, and how to structure trusts that work for your specific situation.
We can help you:
- Determine if a family trust is right for your circumstances
- Recommend solicitors who specialise in trust deed preparation
- Advise on trustee structure (individual vs corporate)
- Provide ongoing compliance and tax planning support
- Coordinate with your legal and financial advisors
Don’t try to navigate family trusts alone. The setup phase is when you need the most care, and getting it wrong can be expensive to fix later.
Ready to discuss whether a family trust makes sense for your family?
Call TSP Accountants on 4926 4155 or email ad***@****************om.au to book a consultation. With 43 years of experience serving Newcastle and the Hunter Valley, we’re here to provide trusted, reliable advice.
About TSP Accountants & Business Advisors
For over 43 years, TSP Accountants has been Newcastle’s trusted partner for taxation, business advisory and wealth protection strategies. We specialise in helping Newcastle and Hunter Valley families and businesses structure their affairs effectively and compliantly.
Call us on 49 26 4155.
Email: ad***@****************om.au
Visit: Unit 2/265 Wharf Road, Newcastle, NSW 2300
Personal. Trusted. Reliable.
Frequently Asked Questions About Family Trusts
What’s the difference between a family trust and a discretionary trust?
They’re the same thing! “Family trust” and “discretionary trust” are just different terms for the same structure. The word “discretionary” refers to the trustee’s power to decide (at their discretion) how to distribute income and capital among beneficiaries.
Can I be both the trustee and a beneficiary?
Yes, this is common. However, you cannot be the sole trustee and sole beneficiary. Many people use a corporate trustee (a company they control) and are also beneficiaries of the trust.
How long does a family trust last?
In NSW, family trusts typically have a maximum lifespan of 80 years from the date they’re established. This is called the “vesting date” and needs to be specified in the trust deed.
Can I put my family home in a family trust?
You can, but it’s usually not recommended. Your family home is generally exempt from capital gains tax when you sell it, but this exemption is lost if the home is held in a trust. There are rare exceptions, so always seek specific advice.
What happens to a family trust if someone gets divorced?
This depends on the trust structure and who controls it. Family trusts can provide some protection in divorce situations, but they’re not bulletproof. The Family Court can look through trust structures in certain circumstances. It’s a complex area that requires legal advice.
Do I need a family trust if I just have an investment property or two?
Not necessarily. Family trusts make more sense when there’s significant income, multiple properties, a family business, or specific asset protection needs. For one or two investment properties with modest rental income, a trust might be overkill. We can help you work out what makes sense for your situation.
Can beneficiaries be removed from a family trust?
This depends on what the trust deed says. Some trust deeds allow the trustee or appointor to exclude beneficiaries, while others don’t. This is another reason why proper trust deed drafting is so important.
What’s the difference between a unit trust and a family trust?
A family trust (discretionary trust) allows flexible distributions, while a unit trust has fixed proportional ownership (like shares in a company). Unit trusts are less flexible but provide certainty about ownership percentages. They’re often used for investment groups or commercial property.
When not at work, Deidre enjoys spending time with her husband and two children, as well as indulging in audiobooks and coffee.
Areas of Expertise:
✅ Business structuring & compliance
✅ SMSF strategy & auditing
✅ Tax planning for individuals & businesses
📧 deidrem@tspaccountants.com.au
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