What is a family trust and how does it work?
A family trust is a legal arrangement in which a trustee holds and manages assets on behalf of beneficiaries — usually family members. The trustee has full discretion over how much income and capital each beneficiary receives each year. This flexibility is the key advantage of a discretionary trust compared to a fixed trust. Common uses include asset protection from creditors, income distribution across a family group, generational wealth transfer, and tax optimisation.
What are the main benefits of a family trust?
- Asset protection — trust assets are generally protected from the trustee's personal creditors
- Tax flexibility — income can be distributed to beneficiaries with lower marginal tax rates
- CGT discount — the 50% CGT discount on assets held 12+ months passes through to individual beneficiaries
- Streamlined estate planning — assets pass according to the trust deed rather than a will
- Business continuity — the trust can continue operating without disruption on the death of a beneficiary
Who are the key parties in a family trust?
- Settlor — initiates the trust with an initial contribution (usually a nominal amount such as $10)
- Trustee — manages assets and holds legal responsibility; can be an individual or a company (a corporate trustee is recommended for greater asset protection)
- Appointor — has the ultimate power to replace the trustee; the most powerful role in the trust
- Beneficiaries — family members (and sometimes related entities) who receive trust distributions
How do you set up a family trust in Perth?
- Clarify your trust's purpose and goals with an accountant
- Select a trust type — discretionary trusts are the most common for Perth families
- Appoint a trustee — consider a corporate trustee (a company) for added asset protection
- Have a lawyer draft the trust deed — this is the governing document and must be done correctly
- Settle the trust with a nominal amount (typically $10)
- Apply for an ABN and TFN for the trust entity
- Open a dedicated trust bank account
- Register for GST if the trust carries on a business with turnover above $75,000
What are the ongoing obligations of a family trust?
A family trust requires an annual trust tax return lodged with the ATO, written distribution resolutions made by 30 June each year (failure to do so results in the trustee being taxed at the top marginal rate), separate financial records and accounting, and periodic trust deed reviews to ensure the structure remains appropriate.
What are the common pitfalls when setting up a family trust?
- Poor trustee selection — choose someone responsible with no conflicts of interest and consider a corporate trustee
- Missing the 30 June distribution resolution deadline — this is a common and costly error
- Commingling personal and trust assets — always use the trust bank account for trust transactions
- Inadequate record-keeping — maintain minutes, resolutions, and distribution records every year
- Not reviewing the trust deed as your circumstances change
The Metier Group provides expert trust setup and management services across Perth. Contact us for professional guidance on whether a family trust is right for your situation.