What are family trusts and how can they help me?

A family trust in Australia is typically a discretionary trust established to hold a family’s assets or conduct a family business. It is a discretionary trust meaning the trustees have discretion over how to distribute income generated in the trust.

What are the key roles in a family trust?

In a family trust, there are certain roles which manage the trusts operation and management:

Trustee:

The trustee is the person or entity responsible for managing the day-to-day conduct of the trust. The trustee holds the legal title to the trust property and in the management of the trust is determined in accordance with the trust deed and relevant laws. The trustee owes fiduciary duties to the beneficiaries, which include acting in their best interests, avoiding conflicts of interest, and not profiting from their position unless authorised.

Trustees have various powers, such as dealing with trust property, carrying on business using the trust property, and compromising or settling claims against the trust property.

Beneficiary:

Beneficiaries are the individuals or entities for whom the trust is established and who can benefit from the trust property. They have the right to enforce the terms of the trust against the trustee. Beneficiaries entitlement to trust assets and/or income are governed by the trust deed and the trustees discretion, and it may be different between each deed.

Settlor:

The settlor is the person who creates the trust by transferring property into it. The settlor’s role typically ends once the trust is established, but they may have certain powers or rights reserved in the trust deed. To avoid settlor related trusts, certain provisions must be included in the deed.

Protector/Appointor:

In some trusts, there may be a role called a protector or appointor and they may be appointed to oversee the trustees and ensure they act in accordance with the trust deed. They may have the power to remove and appoint trustees or to approve certain decisions made by the trustees. This is not a role of law but rather a role of power, and their actions are solely governed by the terms of the deed.

What are the benefits of a family trust?

Family trusts offer various benefits, including limiting liability, providing tax advantages, protecting assets from creditors, and safeguarding assets for future generations.

Generally, the trustee will hold the legal title of property for the benefit of another (the beneficiary) so the e trustee of a family trust can make an election, known as a family trust election, to have the trust recognised as a family trust for tax purposes. This election must be made in writing, specify an individual whose family group is to be considered, and meet the family control test, which ensures that the trust is controlled by the family members. Once made, this election is generally irrevocable.

In family law matters, family trusts can be treated as property or financial resources, depending on the degree of control the parties have over the trust.  

Typically, a family trust itself is not subject to taxation as the net income of the family trust estate is levied on the beneficiaries. In this way, the income from the family trust estate is split among the beneficiaries, and lower tax rates apply to each individual.

Overall, family trusts are a flexible and strategic tool for managing family wealth, but they come with specific legal and tax obligations that must be carefully managed to ensure compliance and maximise their benefits.

If you are thinking about establishing a family trust or want to discuss how this would best work for you, please contact our team of Sutherland Shire Solicitors on 8525 2700 or click here to request an appointment. Solari and Stock’s Commercial Team of Michael Solari, Suna Ozcan or Valentina Abouzeid, will be able to assist you with your family trust enquiries.

Article written by Suna Ozcan
Photo by Jason Goodman on Unsplash