Family trusts do not eliminate tax, but help structure income for legal tax efficiency.
27 June, 2025
Does a family trust avoid tax?
First Financial Team
Does establishing a family trust avoid tax? The short answer is no. The longer answer is a little more complex. A family trust will help optimise tax and provide a vehicle to minimise tax, and there is a difference between the two. Optimising tax is a proactive strategy. Minimising tax is a reactive process.
At First Financial, we help clients use structures like family trusts strategically, not to avoid tax, but to manage it effectively as part of a broader financial plan.
“Optimising tax is a proactive strategy. Minimising tax is a reactive process.”
What is a family trust?
A family trust, also known as a ‘discretionary trust,’ is a legal agreement with an appointed trustee responsible for managing assets on behalf of family members, also referred to as ‘beneficiaries’. The trustee can be a person or a company that oversees how the trust’s income and capital are distributed to the beneficiaries.
A trust deed is established. It is a legal document outlining the rules and conditions that govern the trust. Once the trust deed is established, the trust can own property, operate a business, own shares, and distribute income to the beneficiaries.
Tax and other advantages of a family trust structure
A family trust generally doesn’t pay tax itself, the beneficiaries on the trust pay tax on the income they receive from the trust. A family trust is not the golden chariot to avoid tax, it does provide legal and legitimate tax optimisation and other benefits:
- The trustee can allocate and distribute income to beneficiaries in a lower tax bracket, helping a family better manage their tax obligations.
- Trust distributions may qualify for the 50% capital gains discount. This applies to an asset the trust has held for over 12 months and where the gain on sale is distributed to an individual. This includes:
- Property: residential, commercial, and vacant land
- Listed shares
- EFTs and units in managed funds
- The goodwill of a business
- Licenses, trademarks and IP
- Collectables over $500, such as art, coins, jewellery, etc
- Vehicles and boats that are not for personal use.
- Assets in a trust are typically protected from the creditors of individual family members. This can be very advantageous in family-owned and run businesses.
- Succession planning: A trust is an excellent tool to pass wealth across generations without transfer costs or capital gains tax.
“While a family trust is not the golden chariot to avoid tax, it does provide legal and legitimate taxation and other benefits.”
What is the downside?
Considering if a family trust is the preferred structure for your circumstances, there are several considerations to be aware of.
- Set up and ongoing costs: Establishing a family trust will cost between $1500 and $3000 in legal and professional fees. At minimum, annual accounting, tax returns and trust resolutions will cost between $1000 and $2000 annually.
- Using a company as the trustee adds additional layers of complexity and costs.
- The trust must maintain accurate financial records.
- Only certain people can receive distributions.
- The ATO targets trusts. It will deny claims or demand amendments for poor documentation, or if it suspects false claims.
A family trust has its place
Family trusts are ideal structures for successful family-owned businesses with a large portfolio of assets. They offer a framework for a long-term tax optimisation strategy and can help with tax minimisation. Their superpower is protecting assets, estate and succession planning.
Keep in mind that a family trust comes with costs and compliance obligations. It is highly recommended to seek professional advice to ensure a family trust is the most appropriate structure for your circumstances.
“Their superpower is protecting assets, estate and succession planning.”
Talk to the financial planning experts
First Financial offers clients more than a suite of financial services. We offer professional financial advice tailored to your needs and long-term goals. If you’re considering a business structure, speak to our expert team today and make the best possible structural decisions for your circumstances.
Key Takeaways
Trustees control distribution, allowing flexible tax planning based on beneficiary income levels.
Trusts offer capital gains benefits, particularly the 50% discount on assets held for over 12 months.
Asset protection and estate planning are significant advantages of the family trust model.
Ongoing legal and financial obligations include compliance and annual reporting costs.
Practical Tips
Use a family trust if your business is profitable and you have family members in lower tax brackets.
Consult a professional before establishing a trust to ensure it suits your financial and familial needs.
Keep impeccable records to comply with ATO requirements and avoid penalties or rejected claims.
Consider the long-term benefits, like succession planning and asset protection, when evaluating costs.
Use a company as a trustee only if necessary, as it increases setup and maintenance complexity.
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Frequently Asked Questions
Does a family trust allow me to avoid tax?
No. A family trust helps optimise tax legally but is not a mechanism for tax avoidance.
What is a family trust?
It’s a legal arrangement where a trustee manages assets on behalf of beneficiaries, often used for tax efficiency, asset protection, and succession planning.
Who can be a trustee of a family trust?
A trustee can be an individual or a company, with responsibilities to manage the trust’s assets and distribute income or capital to beneficiaries.
What are the tax benefits of a family trust?
Trusts can distribute income to beneficiaries in lower tax brackets and may be eligible for a 50% capital gains discount on long-held assets.
What are the costs of setting up and maintaining a family trust?
Setup costs range between $1,500–$3,000, with ongoing annual costs typically between $1,000–$2,000.