The important steps in setting up a discretionary family trust

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 You got trust issues?

 There are many types of trusts: unit trusts, charitable trusts, research trusts, superannuation funds are trusts. In short, trusts abound.

 A trust is not a legal entity, but a legal recognition of an obligation in a relationship in which the trustee holds property, assets or money, for the benefit of the eventual recipients: the beneficiaries.

 That said, in taxation law a trust is recognised as an entity for tax purposes.

 This article deals with a particular type of trust—a discretionary trust—often referred to as a family trust, or discretionary family trust. A family trust is simply one example for the use of a discretionary trust, where the trustees may be parents, and the beneficiaries are other family members, including children.

There may be one or more trustees as individuals, but since trustees are responsible for debts incurred by the trust, invariably a proprietary limited company will be established as trustee, with the individual(s) as directors, to limit liability.


But why ‘discretionary’?

 Before dealing with that question, why have a trust at all?

 Family trusts are generally established:

  • To provide more flexible tax planning
  • To take advantage of a 50% reduction in Capital Gains Tax where assets are held for more than 12 months
  • Asset protection: by keeping assets separate from beneficiaries, and therefore protected from creditors in the event a beneficiary is sued or becomes bankrupt
  • To facilitate estate planning

 A discretionary family trust derives its name from the complete power of discretion that the trustee has in deciding:

  • Which beneficiaries receive income or capital
  • When they receive it
  • How much they receive

Let’s go!

 A discretionary family trust can be a very useful instrument to achieve some aims, but circumstances vary considerably, and the absolute first step should be to obtain expert advice to ascertain whether a trust is suitable for you.

 You may have come across terms such as settlor and appointor. Suffice to say, these relate to certain stages of the process and will be explained to you by your lawyer. At this time, do not let them confuse the essential process of setting up a family trust, which is:


Decide upon the person or persons who will be the trustee(s) of the trust. Further, decide whether to establish a proprietary limited company as trustee, with these individuals as directors.

 The trustee acts as legal owner and custodian of the assets held, pending distribution of assets and/or income to the beneficiaries as seen fit, while at all times complying with the trust deed, as described below.


Decide who will be the beneficiaries. There may be one, or more. Beneficiaries can be added or removed later, so don’t agonise over it too much.

 Note that if there is one trustee, and one beneficiary, they can’t be the same person. Oh, bah humbug! you say? That situation would not comply with the concept of a trust, and would be rejected as an attempt to skirt the rules.

 Trust Deed:

The deed defines the rules by which trustee and beneficiaries are bound. The trustee must always act in the best interests of the beneficiaries, but in so doing, must act according to the requirements of the deed.

 Stamp duty:

With the trust deed signed by the trustee(s), it is necessary to pay stamp duty. This varies by State, but in NSW it is currently $500, payable within 3 months.

 ABN and TFN:

The next step is to apply for an ABN (Australian Business Number), and a TFN (Tax File Number). These will be unique to the trust.

 Bank account:

Open a bank account in the name of the trustee once stamp duty is paid and preferably with ABN and TFN in hand.

 Your discretionary family trust is now operational and ready to receive assets.

 Rest assured, your experienced Owen Hodge lawyer can guide you every step of the way—it’s what we do.


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 It will be easier with sound legal advice from the experts. Owen Hodge Lawyers. We are here to help. Contact us today if you have any questions or need any assistance in discretionary trust deeds. 


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