If you’ve worked hard to build wealth, the last thing you want is to lose it because something goes wrong. A family trust is one of the most common ways Australians protect assets and structure investments for long-term family security.
What is a Family Trust?
A Family Trust(also called a Discretionary Trust) is a legal structure where:
- Assets are owned by the trust
- A trustee controls the trust
- Income and benefits can be distributed to family members (beneficiaries)
A family trust is basically a legal “container” that can own assets. Instead of a property, shares, or investments being owned by you personally, they are owned by the trust. The reason this matters is because the law treats the trust as separate from you.
This means if you face legal claims, financial risk, or professional liability, assets held in the trust may be better protected then assets held in your personal name (as long as the trust is set up properly and managed correctly).
How does it work?
A family trust works through a person or company called the trustee. The trustee is the legal controller of the trust and makes decisions. For example, the trustee decides what the trust buys, sells, and how the money is managed. Even though the trustee controls the trust, the trustee does not personally own the trust assets, they manage them on behalf of the trust.
The people who can benefit from the trust are called the beneficiaries. Beneficiaries are usually family members, such as a spouse, children, or sometimes related family entities. Each year, the trust might earn income, for example rent from an investment property or dividends from shares. The trustee then decides how much of that income is distributed and to which beneficiaries.
Put simply, the trust owns the asset, the trustee controls the asset, and the beneficiaries receive the benefit. The trust deed (the legal document) sets the rules of how the trust operates, who can benefit, and what powers the trustee has.
Why establish a Family Trust?
The main benefits of using a family trust include asset protection, tax flexibility, and long-term family wealth planning. Many people use a family trust because it can reduce personal risk exposure, particularly for business owners, property investors, and high income earners.
A trust can also allow income to be distributed among family members (where legally appropriate), which can reduce the overall tax paid by the family group. Over time, a trust can also help keep wealth structured for children and future generations.
However, a family trust is not a magic shield and it does come with downsides. Trusts cost money to set up properly, and they require ongoing accounting and yearly tax returns. If the trust is not managed correctly for example, if it is treated like a personal bank account, it can weaken the protection benefits.
Transferring property into a trust can also trigger stamp duty and capital gains tax, so it must be planned carefully. For some people, especially those with limited assets or simple financial structures, a trust may not be necessary.
How can RN Legal help?
Some of the most common mistakes people make include setting up the trust too late (after legal trouble has already started), buying assets in the wrong name, failing to document trust decisions properly, or setting-up a trust that doesn’t match their situation. If the trust deed is poorly drafted or the trust is managed incorrectly, it can cause serious tax and legal problems. This is why proper legal advice and drafting matter.
RN Legal can help by advising whether a family trust is suitable for your situation, drafting a properly structured trust deed, and ensuring the trustee and beneficiary structure is correct. We can also assist with trust-related legal guidance for property ownership, investment structuring, and long-term succession planning, while coordinating with your accountant to ensure the structure works both legally and practically.
If you are considering a family trust, the best first step is a short trust suitability consultation, so you understand the benefits, the risks, and the correct way to set it up. If you or anyone you know requires assistance creating a Family Trust or help in determining suitability, the team at RN LEGAL can assist. You can contact us via phone on (02) 9191 9293 or via email at [email protected].