Is a family trust a good idea? What Aussies need to know before setting one up
If you’ve ever heard someone say, “We set up a family trust,” you might have assumed it’s something only wealthy folks do. Lately, though, they’re popping up everywhere – on TikTok, Instagram, and other social platforms – thanks to a new wave of ‘finfluencers’ who are talking them up as a clever way to manage money and plan ahead.
Here’s the catch: just because something is trending online doesn’t mean it’s simple or risk-free. Family trusts can be confusing, expensive, and tricky to get right, and the advice floating around on social media isn’t always reliable. They’re not a magic solution, and for most people, jumping in without proper guidance can create more headaches than benefits.
So what is a family trust, how does it work, and why do you need to be wary?
Family trust: the basics
In Australia, a family trust is most commonly a discretionary trust. It’s a legal arrangement where a trustee (a person or company) holds assets – such as property, shares or cash – for the benefit of a group of beneficiaries (usually family members).
Unlike a company, a family trust isn’t a legal entity on its own. But it must lodge a separate tax return each year with the Australian Taxation Office (ATO).
The trustee (often mum and/or dad, or a company they control) is responsible for managing the assets. They also decide which beneficiaries receive income or capital, and how much, each year.
Beneficiaries can include the primary individuals, their children, parents and other relatives.
The key players in a family trust
| Party | Role |
|---|---|
|
Settlor |
The person who sets up the trust with a small initial amount (known as the Settled Sum). They must be independent of the beneficiaries. |
|
Trustee |
Manages the trust’s assets and decides how income or capital is distributed. This can be an individual or a company (a corporate trustee). |
|
Beneficiaries |
The people who may receive income or capital from the trust. |
|
Appointor |
The real power player. They can hire or remove the trustee. Effectively, they control the trust. |
The pros and cons of a family trust
Family trusts can offer wealth management advantages but it's not a one-size-fits-all solution.
| Advantages | Disadvantages |
|---|---|
|
Tax planning and minimisation – The trustee can distribute income (like rent or dividends) to beneficiaries on lower tax rates, helping reduce the overall tax bill. |
Complex and costly – Set-up can cost thousands, and annual legal and accounting fees add up fast. |
|
Asset protection – Assets are legally owned by the trustee, not the individual, offering some protection from bankruptcy. |
Losses are trapped – If the trust makes a loss (for example, via negative gearing), it can’t be distributed to offset a beneficiary’s tax. |
|
Capital gains tax (CGT) discount – As for individuals, assets held for over 12 months may qualify for the 50% CGT discount. The discounted gain can be 'streamed' to individual beneficiaries who pay tax on it at their marginal rate, allowing for strategic tax minimisation across the family. |
Tax on undistributed income – Any income not distributed by 30 June is taxed at the top marginal rate (currently 45%), plus the medicare levy (currently 2%). |
|
Estate and succession planning – Trusts can last up to 80 years, helping families pass wealth through generations without relying solely on a will. |
Tax on minors – Beneficiaries under 18 are heavily taxed on distributions above $416 per year. |
|
Loss of ownership – The trustee is the legal owner, not the beneficiaries, which can affect some benefits, such as the First Home Owner Grant. |
|
|
Borrowing is harder – Banks view trusts as higher-risk and often require trustees and adult beneficiaries to act as personal guarantors. |
Family trust costs in Australia
Set-up costs
Establishing a family (discretionary) trust usually costs more than $2,500. The total depends on whether you use a DIY legal service or a specialist lawyer or accountant.
That fee typically covers:
- Drafting the Trust Deed
- Paying the Settled Sum
- Stamp duty/stamping (around $500 in NSW)
- Corporate trustee setup (optional but common) – $500 to $1,000
Ongoing costs
Running a trust isn’t a “set and forget” exercise. You’ll need:
- Annual accounting and tax return – from $1,500 per year
- ASIC company fee – if you have a corporate trustee
These costs add up quickly, so ensure any potential tax savings outweigh the ongoing admin.
Buying property through a family trust: a reality check
While it’s possible to buy property through a family trust, it’s rarely the best move for most home buyers or first-time investors.
For owner-occupiers:
If your main residence is owned by a trust, you lose access to the capital gains tax exemption when you sell – a costly trade-off that usually outweighs any benefits.
For investors:
Trust loans are complex. Lenders assess not only the trust’s finances but also those of the trustee and beneficiaries. You’ll need to provide the full Trust Deed and may face higher rates or tighter conditions.
Stamp duty and land tax traps:
Transferring a property into a trust later can trigger stamp duty and CGT. And in some states, trust-owned property isn’t eligible for the land tax threshold, meaning a bigger annual bill.
Example: When a family trust doesn’t stack up
Scenario: Sarah, a sole trader earning $80,000, wants to buy her first investment property and is considering using a family trust for “tax savings”.
For Sarah, the family trust adds red tape and expenses without any real tax advantage.
| Option | Family Trust | Personal Ownership |
|---|---|---|
|
Initial cost |
High (over $2,500 plus legal fees) |
Low (no set-up fee) |
|
Ongoing cost |
At least $1,500+ per year for accounting and compliance |
Standard tax agent fees |
|
Loan complexity |
High – banks often require personal guarantees |
Low – standard home loan |
|
Tax benefit |
Minimal. Hard to distribute income effectively at this income level. |
Straightforward – claim deductions directly |
|
Suitability |
Poor – costs and complexity outweigh benefits |
Good – simpler and cheaper |
How to set up a family trust in Australia
Setting up a family trust should be done with professional guidance. The process looks like this:
- Get advice. Consult a solicitor or financial adviser to see if a family trust suits your situation.
- Define the parties: Choose your trustee (individual or corporate), appointor & beneficiaries.
- Draft the Trust Deed: Have a solicitor prepare the legal document.
- Settle the trust: Settlor signs the deed and provides the settled sum (usually $10 or $100).
- Execute the deed: Trustee signs; deed is stamped by state/territory revenue office.
- Register with ATO: Apply for a Tax File Number (TFN) & Australian Business Number (ABN).
- Open a trust bank account: In the trustee’s name, as “trustee for [Trust Name]”.
- Transfer or acquire assets: Once established, the trust can purchase or hold investments.
Should you open a family trust?
A family trust can be a powerful structure for managing wealth, protecting assets, and planning for the future – but it’s not for everyone.
The high costs, complex rules, and strict ATO oversight make it more suitable for families with significant assets or multiple income streams rather than first-time investors or modest earners.
Before you dive in, speak with a qualified tax accountant or lawyer who understands Australian trust law. A little expert advice upfront can save a lot of time, money and stress down the track.
Family trusts can be useful for investors, but if you’re buying your first property, the right loan matters more. Start your property journey by comparing first home buyer loans below.
