Should I Invest Through A Family Trust?

Family trusts are quite common in Australia. They can protect the assets that are placed under their care and distribute profits in a tax efficient manner. Let’s get down into the details of this form of trust.


What is a Family Trust?


A family trust is a discretionary trust established to protect the assets of the members of a family. They’re typically created to protect assets and shield them from government taxes.

A family trust is a kind of trust that’s meant to benefit a family in holding assets or conducting a business. A trust is passed on to the next generation of beneficiaries, making it an effective tool for holding inheritances.

Remember that once you put an asset in a trust, ownership is passed on to the trust, forfeiting your personal rights on the said property.

Key Players


There are 4 important entities you should take note of in setting up a trust: the settlor, the appointor, the trustee, and the beneficiaries.


They hold the true power in a trust structure. They can appoint or fire the trustee at any time, at their discretion.


The settlor is the one responsible for setting up the trust. Usually, accountants or solicitors are hired for this job. Together with the trustee, they settle the terms defined in the Trust Deed.


The trustee oversees the management of the trust, enacting the rules defined in the trust deed. This entity can either be an individual or a company where the directors count as the trustees.

Companies are more efficient in handling trusts because they can outlast the life of an individual. Even when the directors of the company perish or resign, the trust will simply be handled by the next in line.

Usually, independent entities like family lawyers or accountants are chosen to be the trustees.


Set of people who profit from the trust. This entity can be an individual, a company, or even the trustee managing another trust.


Points to Remember


Here are some of the actions and documents you should know about when using a trust.

Trust Deed

It is a legally binding document containing the terms and conditions of the trust. It also defines how the trust is to be managed by the trustee and how profits should be distributed.

Distribution of Profits

Profits should be distributed by the end of the financial year. The trustee will be held responsible for paying up to 47% of the income accumulated by the trust if they fail to comply with this regulation.

A document containing the details of the distribution must be drafted and signed at the end of the financial year.

Family Trust Election

A Family Trust Election (FTE) is held in the occurrence of any of these scenarios:

  1. Trust carries forward tax losses
  2. Distribution of a trust to another different trust
  3. The trust holds a company that has losses
  4. Distributed dividends are subject to franking credits

The trust’s accountant typically prepares an FTE and its results are disclosed in the annual filing of a family member’s (beneficiary) tax returns.


Benefits of a Family Trust


Here are a few reasons why it’s advantageous to store assets under a family trust.

Asset Protection

Family trusts are popular because of their capacity to shield the assets of the beneficiary from possible legal and financial problems. For example, a parent buys a house for their kid and puts the ownership of the house in the trust. When a problem arises within the family (i.e. marital issues), the trust can protect the house since it’s counted outside the boundaries of marital properties.

Although the trustee manages the trust, they cannot use it to pay their debts or to benefit their personal interest. Assets that belong to the trust also cannot be touched by the beneficiary’s creditors except when the trust itself is obliged to pay money to its beneficiaries.

Beneficiaries cannot also force the trustee to distribute money whenever they’re facing financial troubles.

Safe Haven From Bankruptcy

In case a beneficiary goes bankrupt, the trustee is not required to provide income or pay the debt of the beneficiary until the beneficiary recovers from bankruptcy.

A person ceases to be the owner of the asset once they transfer it under the protection of a trust. This is advantageous in situations wherein the beneficiary is sued, putting his/her assets in trouble.

However, a beneficiary can’t suddenly transfer their assets into a trust for the purpose of defeating creditors on their tail. The same thing goes for assets gifted four years before the transferor files for bankruptcy.

Shield From Taxes

Profits distributed from a trust tend to have lower tax rates. Many people put the house they bought for their children under a trust fund to save on taxes.

Last Will

Division of assets stated in a deceased person’s Will may sometimes cause an unnecessary rift among family members; many will want to have a piece of the cake.

Since any asset involved in a trust is considered an independent property discounted from the personal estate of the deceased, it may be a good idea to put the properties in trust to avoid internal conflict. The family cannot easily touch the deceased’s property held by a trust because ownership has been transferred to the trust fund.


Drawbacks of a Family Trust


Here are some of the pitfalls you should look for in creating a family trust.

Control of the Trust

There can be any number of properties mixed in a single trust. As it’s passed down from generation to generation, more and more beneficiaries take part in the profits from the trust, making it harder to distinguish, which is for whom.

A well thought of succession plan can help in this situation. The document can define who should be the next appointer, trustee, or who should be the rightful heirs of the trust.

Costly to Maintain

Trusts are complex to set up and manage. Once set up, you have to pay accounting and legal fees for maintaining the trust. Be ready to spend around $500 to $2,000 to set up a trust account and around the same price for annual fees.


Make sure your trust is set up properly. Failure to properly document everything can put you at risk of having your trust seen as a bogus account. The government can penalize you, forfeiting any advantages you would have gained.

There are many advantages in setting up a trust fund and they can outweigh the possible risks that may arise during the trust’s existence.

Comments are closed.