How to set up a trust in Australia in 2025?

Trusts are widely used for estate planning, investment and other business purposes in Australia. But how do they work, what types of trust funds are available and what steps are involved when setting up a trust?

What is a trust fund?

Under Australian law, a trust is an estate-planning tool that puts a person, or a group of people, in charge of holding an individual’s assets in an account for the benefit of another person or people.

The person or entity charged with managing the trust and distributing its assets is called a trustee. And those who receive the assets are known as beneficiaries. Property, shares and family businesses are commonly held in trusts.

Superannuation funds in Australia are examples of trusts. The people or company managing the super fund are trustees charged with looking after the savings of the fund’s members (the beneficiaries) until those members retire or meet another condition of release.

How is a trust fund set up?

A trust is established via a legal document known as a trust deed. The deed outlines details including:

• The trust’s purpose
• The trustees
• Current and potential future beneficiaries of the trust
• How benefits are to be paid

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What is a trust fund used for?

Trusts can be a useful financial tool for people to use to manage their personal, family or business assets, especially when they want to ensure those assets are handled in a way that benefits future generations.

A trust can also help ring-fence assets, protecting them from creditors and lawsuits. Plus there are some tax benefits associated with placing assets in a trust.

Why set up a trust fund?

Reasons people create trust funds, include:

Providing for family members

Trusts can be used by individuals who want to ensure they control the flow of their assets to the trust’s beneficiaries, such as their children or grandchildren. This can be useful when the beneficiaries are too young or incapacitated to manage their own finances.

For example, a trust can be used to pay for school or university fees, or to pay a lump sum to somebody when they turn 21.

Protecting assets from creditors and lawsuits

Trusts are also often created to separate assets from a person’s estate. For instance, if you run a family business and it fails, you could face claims by your creditors, and assets held in trust could be protected from their actions.

However, trusts do not offer blanket protection from creditors, and it is unlawful to hide or attempt to transfer assets away from the reach of creditors.

Structuring family businesses

Family trusts are sometimes used to help manage family businesses. It allows family members to benefit individually from how a business is controlled and its profits shared.

Tax purposes

One of the main advantages of holding assets in a trust is that any income generated by those assets – whether a business or investments – can be distributed to beneficiaries at their individual tax rates.

So if you have a high income and pay a top tax rate, if you put your assets in a trust, the trustees could make payments to your beneficiaries who might then pay lower rates of tax.

However, it’s important to note children under the age of 18 are required to pay top rates of tax on their trust distributions. This is to prevent families making trust payments to underage children as a tax dodge.

What types of trust are there in Australia?

There are several different types of trusts in Australia, including:

1. Discretionary family trusts

A discretionary family trust, or simply a family trust, is a common type of trust that’s used to hold family assets or conduct a family business. Within parameters set out in the trust deed, the trustee is able to choose how much money the beneficiaries receive from the trust and when.

This allows the trustee to distribute income in a tax-effective manner. It also provides the trustee with flexibility to meet the changing or unpredictable needs of recipients, such as the educational or career development costs of a child or grandchild.

2. Fixed trusts

In a fixed trust, the beneficiaries have fixed entitlements to the income and assets of the trust, as set out by the trust deed. A fixed trust can lead to less conflict amongst beneficiaries, as their entitlements are predetermined and can’t be changed.

3. Fixed unit trusts

A fixed unit trust is, essentially, the same as a fixed trust, except that it shares its capital and income among its beneficiaries based on how many units they have in the trust.

Fixed unit trusts work in a similar way to how shares in a company entitle their owners to a proportion of the capital of the company and its earnings. For example, the trust could be established with 100 units and there may be five beneficiaries, each with a fixed entitlement of 20 units.

4. Testamentary trusts

A testamentary trust is set up under the terms of a will.

For example, if you have young children, should you die, a testamentary trust will appoint trustees to protect and manage the assets in your estate until your children are old enough to receive their inheritances and manage their own finances.

Until that point, under the parameters set in your will, the trustee can release money from the trust to the beneficiaries for expenses such as education or orthodontics.

5. Special disability trusts

A special disability trust (SDT) is a way to plan for the long-term care and accommodation needs of someone with a severe disability. The trust can pay for reasonable care (such as case management, therapy, special food, or mobility aids), accommodation and other discretionary needs of the beneficiary during their lifetime.

For a special disability trust to be established, the beneficiary must meet the legal definition of ‘severe disability’, as assessed by Services Australia. SDTs have more favourable tax and other financial benefits than family trusts.

6. Charitable trusts

Charitable trusts are set up to support good causes, and can receive substantial tax concessions. However, to receive tax breaks from the Australian Tax Office, a charitable trust must adhere to strict legal requirements and be registered with the Australian Charities and Not-for-profits Commission.

7. Superannuation proceeds trusts

A superannuation proceeds trust can be used to receive a super fund member’s payout in the event of their death. The benefits of using a superannuation proceeds trust instead of having super funds paid directly to a dependent include possible tax advantages, being able to ringfence the money from creditors and any future partners, and to control the flow of funds to dependents, such as underage children.

10 steps to setting up a family trust fund

Family trusts are one of the most common types of trusts in Australia. Here are 10 common steps to take when setting one up:

1. Decide on the trust assets

List all the holdings (such as cash, shares, property, or other investments), to be placed in the trust, along with their value.

2. Choose a trustee

Selecting a trustee is an important element in establishing any trust, including a discretionary trust. The trustee will need to manage the trust in accordance with the terms set out in the trust deed. A trustee can be an individual, several individuals or a company. It is a good idea to consider an independent trustee, as conflicts of interest can arise if the trustees of a family trust are related to each other and are beneficiaries of the trust.

3. Determine the beneficiaries

Compile a list of the people or entities you want to be entitled to receive benefits, such as your children or grandchildren. You’ll also need to decide what sort of entitlement you want the beneficiaries to receive – whether it’s a percentage, a fixed amount or at the trustee’s discretion.

4. Draft a trust deed

Engage a professional, such as a lawyer, to create the trust deed, which is a legal document that sets out the rules that govern your trust fund and the powers of your trustee.

5. Settle the trust

A settlor must sign the trust deed and pay an initial settlement sum (usually a token $10) to the trustee. The settlor is generally someone unrelated to the beneficiaries of the trust, such as an accountant or family friend.

The settlement sum is representative of the trust’s assets, and paying the sum reflects the exchange of these assets to be held by the trustee. While the sum is a token amount, it’s an important formal step in establishing the validity of the trust.

6. Sign the trust

After the trust is signed by the settlor, the trustee, or trustees, must hold a meeting to agree their appointment and accept the terms of the trust deed.

7. Pay stamp duty, if required

Depending on where you live in Australia, you might have to pay stamp duty when lodging your trust deed. There are no stamp duties payable in Qld, SA and ACT, while NSW authorities charge $500. Consult your legal advisor about the stamp duty and timeline requirements for lodging trust deeds in your location.

8. Create a name for your trust

You can name your family trust whatever you like. You can use your surname and/or name it after its purpose, for example the “Smiths Educational Fund” or “Smiths Investment Fund”.

9. Apply for an ABN and TFN

You will need a Tax File Number (TFN), for the trustee to use when lodging the trust’s tax returns. If you intend to carry out business activities under the trust, such as a family business, then it’s likely you will also need to obtain an Australian Business Number (ABN). The trustee applies for the trust’s TFN and ABN in their capacity as trustee.

10. Set up a bank account

The last step is to open a bank account for the trust. It should be opened in the name of the trustee as a trustee for the trust. The first deposit into the account should be the settlement sum. Once the bank account is open, the trust can accept contributions or make investments.

→ Related: Family trusts: Benefits, taxes and the law

What are the pros and cons of trust funds?

There are many possible advantages and disadvantages of setting up a trust fund:

Trust fund pros

• Aids with tax strategy and planning.
• Can provide financial security for vulnerable family members.
• Can protect wealth for future generations.
• Helps minimise risks of inheritance disputes.

Trust fund cons

• Costs involved in the trust’s set-up and ongoing administration, including the need to provide annual tax returns.
• If the trust runs at a loss, beneficiaries many have to contribute to its running expenses.
• Limited trust lifespans. Most trusts other than charitable trusts are limited to 80 years.
• Possible tax liabilities on expiry of trust.

While a trust can be relatively simple to set up, it’s important that it be done correctly, and in the context of a broader financial strategy. As with all major financial decisions, when setting up a trust in Australia, it’s advisable to seek qualified advice.

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