Thinking about setting up a trust in Australia? You’re not alone. Many founders, family business owners and investors use trusts to protect assets, plan for tax efficiently and manage wealth across generations.
In this guide, we’ll break down how trusts work in plain English, when they’re useful, and the key steps to set one up properly. We’ll also cover the legal documents you’ll need and the ongoing compliance to keep on your radar.
If you’re weighing up whether a trust is right for you, this overview will help you move forward with confidence.
What Is A Trust And How Does It Work?
A trust is a legal relationship where one party (the trustee) holds and manages assets for the benefit of others (the beneficiaries) under the rules of a trust deed. Think of the trust deed as the “rulebook” that guides how assets are held, managed and distributed.
The trustee can be an individual or a company. Beneficiaries can be people, companies or even other trusts, depending on how your deed is drafted.
Importantly, a trust is not a company. It’s a structure used to hold assets and distribute income or capital. The trustee has legal control of the assets, but they must use them for the beneficiaries according to the deed and the law.
Why Do Australian Business Owners Use Trusts?
There are a few powerful reasons why trusts are popular with small business owners and family groups in Australia.
- Asset protection: Placing assets in a trust can help separate them from your personal name. If the trustee is a company, you may add another layer of protection between business risks and personal wealth (noting that directors can still have personal exposure in some cases).
- Tax planning flexibility: Some trusts (like discretionary trusts) allow the trustee to “stream” or distribute income to beneficiaries according to the deed. This can support legitimate tax planning within the rules set by the Australian Taxation Office (ATO).
- Succession planning: A trust can provide a clear framework for intergenerational wealth transfer, helping reduce disputes and preserving control over how assets are dealt with.
- Business structuring: Trusts are often used to own business assets (like intellectual property or property) while a separate entity runs the day-to-day operations. This can ring‑fence risk and improve flexibility if you expand or restructure later.
The right structure for you will depend on your goals, family circumstances and risk profile. It’s common for business owners to combine a trust with a company (for example, using a corporate trustee).
Common Types Of Trusts (And When To Use Them)
Before you set up a trust, it helps to understand the main types used in Australia.
Discretionary (Family) Trust
The trustee has discretion about how to distribute income and capital among a defined class of beneficiaries (usually a family group). This is the most common structure for family businesses and investment portfolios where flexibility is key.
Unit Trust
Beneficiaries hold fixed “units,” a bit like shareholders hold shares. Income and capital are typically distributed in proportion to unit holdings. This can suit unrelated co‑investors or joint ventures where certainty of entitlement is important.
Hybrid Trust
A mix of discretionary and unit features. These can be complex and are less common now, but you’ll still see hybrid features used in bespoke structuring.
Testamentary Trust
Established under a will and comes into effect upon death. Testamentary trusts can offer tax advantages for minor beneficiaries and can help preserve assets for the next generation.
Bare Trust
Also called a simple trust, where the trustee holds property for a beneficiary who has an immediate and absolute entitlement. A bare trust is often used for specific holding purposes (for example, when a lender requires a particular asset to be held in a nominee’s name).
Each trust type has legal and tax implications. If you’re unsure which structure fits your goals, it’s wise to get tailored advice before you lock anything in.
How Do You Set Up A Trust? Step-By-Step
Setting up a trust is straightforward when you break it into steps. Here’s a typical pathway.
1) Clarify Your Purpose And Beneficiaries
Start with the “why.” Are you aiming for asset protection, income distribution flexibility, or investment co‑ownership? From there, decide who will be included as beneficiaries (individuals, family members, companies or other entities).
2) Choose The Trustee (Individual Or Corporate)
An individual trustee can be cheaper to set up, but a company as trustee often provides cleaner separation between personal and trust assets, and smoother changes of control later. If you opt for a corporate trustee, you’ll also want a strong Company Constitution to govern the company that acts as trustee.
3) Draft The Trust Deed
The trust deed sets the rules of your trust: who the beneficiaries are, what powers the trustee has, how distributions work, what happens if a trustee changes, and so on.
Getting this right up‑front is critical. A well‑drafted deed adds real value-especially when you need to admit new beneficiaries, refinance, or sell assets.
4) Appoint The Settlor
The settlor is the person who “creates” the trust by giving a nominal sum to the trustee to hold on the terms of the deed. The settlor shouldn’t be a beneficiary and typically should not be the trustee. For a deeper look at this role, see the settlor overview.
5) Execute The Deed Correctly
Make sure the deed is signed and witnessed in line with applicable signing rules (including any state-based requirements). If your trustee is a company, consider the rules for signing documents under Section 127 of the Corporations Act.
6) Apply For ABN/TFN And Open A Bank Account
Depending on your activities, a trust may need its own TFN and ABN. If you’ll be carrying on an enterprise and meet the threshold, you may also register for GST. Our guide to trust requirements covers ABN, TFN and when an ACN is relevant (for corporate trustees).
7) Transfer Or Purchase Assets
Move assets into the trust or acquire new assets using trust funds. Be mindful of stamp duty, CGT and any lender consent requirements. The earlier you plan these steps, the cleaner and cheaper the transfer tends to be.
8) Put Governance Around Your Structure
If you’ve appointed a corporate trustee and there are multiple founders, a Shareholders Agreement can set clear decision‑making rules at the company level. Good governance makes day‑to‑day management and future exits easier.
Legal And Tax Considerations (Before You Press Go)
Trusts can be powerful, but the benefits rely on getting the details right-and staying compliant year after year. Here are the big-ticket items to consider.
Distributions And Streaming
In a discretionary trust, the trustee generally decides who receives income and capital each year (within the deed’s rules). Minutes resolving distributions should be prepared on time. If your deed allows, you may stream specific types of income (like capital gains) to specific beneficiaries-make sure the deed supports what you intend to do.
Corporate Trustee Considerations
A company as trustee adds a useful liability shield and simplifies changes of control (you can transfer shares rather than changing the trustee). It’s also common to use a dedicated SPV as the corporate trustee for clean separation from other ventures.
Record‑Keeping And Resolutions
The trustee must keep proper records: accounts, distribution minutes, beneficiary notices and bank statements. Accurate records are essential for tax compliance and for demonstrating that assets are held for the trust (not the trustee personally).
Fiduciary Duties And Conflicts
Trustees owe duties to act in the best interests of beneficiaries and to follow the terms of the deed. Managing conflicts, documenting decisions and taking advice when needed will help you meet these obligations.
Changing The Deed (Deeds Of Variation)
Over time, you may need to update your deed (for example, to add powers or modernise definitions). Variations must be permitted by the original deed and executed correctly. Poorly drafted or executed changes risk a “resettlement” (being treated as a new trust) with adverse tax consequences.
Tax Registration And BAS/Returns
Trusts generally lodge annual tax returns and, if registered for GST, BAS statements. If you distribute income to beneficiaries, they will need to report and pay tax on those distributions. Stay in step with ATO deadlines to avoid penalties.
Financing And Security
If the trust borrows, the lender may require guarantees and security. Make sure any guarantees align with your risk appetite and that security documents identify the trustee in its capacity as trustee (not personally).
Employee And Contractor Engagement
If the trust employs staff or engages contractors, you’ll need compliant employment agreements and workplace policies, superannuation, payroll and Fair Work compliance. Getting the foundation right here can prevent costly disputes down the track.
Trusts Vs Companies: Which Structure Suits You?
Both structures can work-and often, the best solution combines them.
- Trusts: Great for holding and protecting assets, flexible income distribution (within ATO rules), and family wealth planning.
- Companies: Ideal for operating businesses that reinvest profits, provide limited liability to shareholders, and enable equity raises, employee share plans and streamlined ownership transfers.
Many founders use a trust to hold assets (like IP or property) and a company to run the operating business, with the company paying arm’s‑length fees back to the trust. If you’re using a corporate trustee, the company that acts as trustee should also have a clear governance framework (constitution, registers, director resolutions) to stay compliant.
What Legal Documents Will You Need?
Here are the key documents most Australian trust structures rely on. Not every structure needs all of these, but many will need several of them from day one.
- Trust Deed: The core rulebook for your trust-sets out beneficiaries, trustee powers, distribution rules and administrative provisions.
- Deed Of Variation: Used to update your trust deed if permitted by its terms (e.g. to add streaming powers or modernise definitions).
- Corporate Governance Documents: If you use a company as trustee, you’ll want a solid Company Constitution and director/shareholder resolutions to support decisions.
- Shareholders Agreement: Where there are multiple owners in the corporate trustee, a Shareholders Agreement helps set decision‑making rules, exit pathways and dispute mechanisms.
- Asset Transfer Documents: Contracts and assignments to move assets into the trust cleanly (and to evidence the trustee holds them on trust).
- Finance And Security Documents: If the trust borrows, loan agreements and security documents should name the trustee in its capacity as trustee.
- Resolutions And Minutes: Annual distribution minutes, appointment/removal of trustees, admitting beneficiaries (as permitted by the deed), and other governance actions.
- Execution Guidance: If your trustee is a company, follow the rules for Section 127 execution to reduce enforceability risks.
If your trust will hold shares in a private company, it’s also common to document how those shares are held and managed-our guide to beneficially holding shares through a trust explains common approaches.
Practical Tips For A Smooth Trust Setup
- Start with your objectives: Write down what you want the structure to achieve in the next 1-5 years (income distribution, asset protection, future sale or succession).
- Keep entities tidy: Use a dedicated corporate trustee per trust where possible, and avoid mixing trust and personal assets.
- Bank accounts matter: Open a bank account in the trustee’s name “as trustee for” the trust and use it for all trust transactions to preserve asset protection.
- Document early and often: Minute distributions before 30 June, keep registers current and file deeds and variations in a secure, searchable place.
- Review the deed annually: Legislation and ATO guidance change-ensure your deed still supports what you plan to do.
- Get the right advice at the right time: A short consult upfront can prevent costly resets later.
If you’re still mapping out your structure, our in‑depth overview of trusts in Australia also covers how trusts fit into wider asset protection and tax strategies.
Key Takeaways
- A trust separates control (the trustee) from benefit (the beneficiaries) and is widely used for asset protection, tax flexibility and succession planning in Australia.
- Choose a trust type that matches your goals-discretionary for flexibility, unit trusts for fixed entitlements, and corporate trustees for added separation and clean governance.
- Getting the trust deed right is critical; execute it properly, appoint an appropriate settlor, and set up ABN/TFN and bank accounts in the trustee’s name “as trustee for” the trust.
- Stay on top of annual distributions, records and compliance; poorly timed or undocumented decisions can undermine tax and asset protection benefits.
- If you use a corporate trustee, support it with a strong Company Constitution, and use a Shareholders Agreement where there are multiple owners.
- Plan ahead for changes-only vary your deed where permitted, and execute variations correctly to avoid resettlement risks.
If you would like a consultation on setting up a trust in Australia (or reviewing your current trust deed), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
