Family Trust Explained — How It Works in Australia
This guide explains how a Family Trust (also known as a discretionary trust) works in Australia, and when it may — or may not — be suitable.
What is a Family Trust?
A Family Trust is a legal structure where a trustee holds assets on behalf of beneficiaries, usually family members or related entities.
The trustee has discretion over:
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how income is distributed
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when distributions are made
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how trust assets are managed
In most cases, the trust itself does not pay tax. Income is distributed to beneficiaries, who are taxed at their own marginal rates.
Key roles in a Family Trust
Every Family Trust involves several defined roles:
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Trustee
Manages the trust and makes all distribution decisions -
Beneficiaries
Individuals or entities who may receive income or capital -
Appointor
Holds ultimate control by having the power to appoint or remove the trustee -
Settlor
Establishes the trust. The settlor cannot benefit from the trust
Understanding these roles is essential before setting up a trust.
Why people use Family Trusts
Family Trusts are commonly used for:
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Holding investment properties
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Running family-owned businesses
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Managing income distribution flexibility
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Long-term family and succession planning
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Separating assets from personal ownership
They are not a “set and forget” structure and require proper annual administration.
Ongoing obligations
Once established, a Family Trust must:
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Prepare annual financial statements
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Lodge a Trust Tax Return
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Make valid annual distribution resolutions
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Maintain proper records
Failing to meet these obligations can result in tax issues or penalties.
Is a Family Trust right for you?
A Family Trust can be effective, but it is not always the right structure.
Your income level, assets, family situation, and long-term plans all matter.
If you’re unsure, professional advice before setting one up is strongly recommended.
Next steps
If you already know a Family Trust is appropriate, you can proceed with our setup service.
If you’re still deciding, we offer a free 20-minute consultation to talk through your situation and options.
