News » How to Set Up a Trust in Australia

October 20, 2023

Setting up a trust in Australia has become an incredibly popular option for those looking for an efficient, protective, and flexible investment structure. It’s a common misconception that this option is reserved for the ultra-rich, with many everyday families utilising this structure for not only their own benefit, but also in legacy planning for their child or children.

If you are actively engaged in wealth accumulation, you can significantly benefit from understanding how to start a trust, utilising it as a robust shield for personal, family, and business assets. In this guide, our advisor John Bartle highlights the benefits of setting up a trust in Australia, what you can expect with the process and tips to setting up a trust.

What are Trusts?

To set up a trust is to create a separate legal framework where collective assets—ranging from stocks, bonds, and cash to real estate and valuable collectables—are held and managed on behalf of beneficiaries. They are versatile structures available in various forms, each with distinct procedures, regulations, and tax implications, designed to facilitate effective asset protection and wealth management.

Who is Involved with a Trust Set Up?

In the trust set-up process, the settlor is the person(s) who initially contributes the assets. They transfer ownership of these assets over to the trustee, who is responsible for managing and distributing the assets in accordance with the trust’s terms and the beneficiaries’ best interests. Beneficiaries are either individuals or entities set to receive the assets or income the trust generates.

Whether you are considering setting up a trust for a child in Australia or establishing a trust to secure your financial legacy, understanding these roles is fundamental, as each participant plays an integral part in ensuring the trust operates smoothly and serves its intended purpose of safeguarding assets.

What are the Different Types of Trusts in Australia?

Family or Discretionary Trusts

Family (discretionary) trusts are popular choices in Australia, particularly for families owning businesses and cash-flow activities. These trusts offer flexibility as the trustees have the option (or discretion) to decide the distribution frequency and recipients of the trust’s assets or income. This structure is not only straightforward to set up but also provides an efficient way for asset protection and income distribution among family members.

Unit or Fixed Trusts

Unit trusts, also referred to as fixed trusts, operate with the trust’s assets divided into units, almost like shares in a company. Each beneficiary, or ‘unit holder’, will own a specific number of units, with distribution predetermined based on the number of units they hold, providing clarity and certainty in income distribution. The structure is often the suitable choice for scenarios involving multiple families or disconnected individuals, allowing for a clear, proportionate distribution of benefits among unit holders.

Hybrid Trusts

Hybrid trusts combine key elements of both family and unit trusts. Trustees in hybrid trusts have the discretion to distribute income and capital among the beneficiaries, but the distribution is also proportionate to the number of units each beneficiary holds. This dual characteristic makes hybrid trusts an attractive option for managing significant investment assets, offering accounting benefits in income tax and capital gains tax that many investors find advantageous.

Special Disability Trusts

Special disability trusts are designed with the welfare of disabled family members in mind. Established to provide for the current and future care of a severely disabled beneficiary, these trusts allow family members and carers to make financial contributions to support their loved one(s).

Whether you are setting up this trust for a child, family member, or group, the funds can be utilised to cover various expenses, including medical and accommodation costs, providing financial security and support for those in need.

Why Consider Setting Up a Trust in Australia?

Setting up a trust in Australia offers a myriad of benefits, making it a compelling consideration for individuals looking to safeguard their assets and ensure their efficient management and distribution.

Common benefits include:

Asset Protection

Trusts provide a robust layer of asset protection from legal proceedings. When assets are assigned to a trust, they are effectively separated from the settlor’s personal estate, shielding them from potential claims by creditors in bankruptcy proceedings or plaintiffs in lawsuits, thereby providing a secure haven for your wealth.

Asset Management for Minors & Incapacitated Individuals

For families with minors or individuals who are legally incapable of handling their own affairs, a trust serves as a prudent mechanism for asset management. It allows for the careful and responsible handling of assets for others, ensuring that their financial well-being is taken care of, and assets are utilised in their best interest.

Preventing Poor Asset Utilisation

Trusts are also invaluable in preventing asset mismanagement by individuals prone to imprudent spending. If you are concerned about spendthrift family members squandering their inheritance, for example, setting up a trust in Australia can provide a structured and controlled environment for asset distribution, preventing reckless expenditure and ensuring long-term financial stability.

Managing and Distributing Retirement Funds

Trusts can prove instrumental in your retirement planning. By setting up a trust in Australia, individuals can ensure a steady and reliable flow of income during their retirement years, as well as continued, meticulous management and distribution of pension or retirement funds. Doing so facilitates a financially secure and comfortable life post-employment.

Importance of Seeking Professional Advice

Setting up a trust in Australia is a complex process that, while beneficial, is difficult to undo, necessitating careful planning and expert advice. Trusts demand a deep understanding of legal and financial principles due to their intricate and binding nature. A misstep in the setup process can lead to non-compliance or misalignment with your financial objectives, resulting in potentially severe, adverse outcomes for you and your beneficiaries.

A Step-by-Step Guide to Trust Set Up

Step 1: Identifying & Allocating Your Trust Assets

Listing and undergoing valuations for the assets to be placed in the trust, such as real estate, stocks, bonds, and cash.

Step 2: Select & Appoint Your Trustee(s)

Select a responsible and impartial trustee, considering their legal authority and control over assets. An independent trustee is often a wise choice for unbiased asset management and distribution.

Step 3: Outline Your Beneficiaries & Distribution Methods

Compile a list of beneficiaries and decide the percentage of assets each will receive. Clearly outline the distribution methodology to avoid future disputes or confusion.

Step 4: Drafting Your Trust Deed

The trust deed is a key legal document outlining the trust’s rules and trustee powers. It should be professionally crafted to ensure compliance with legal standards and should be reviewed and updated regularly.

Step 5: Reviewing Stamp Duty Requirements

Stamp duty, a state-based tax, may be payable on the trust deed. This can be arranged through the relevant revenue authority or a professional advisor in your state or territory.

Step 6: Registering as a Business

Obtain necessary registrations, including an Australian Business Number (ABN) and Tax File Number (TFN). Depending on the trust type, you may need to register it as a company.

Step 7: Opening a Trust Bank Account

Open a bank account in the trustee’s name after establishing the trust. Banks may require personal details about all parties involved in the trust.

Step 8: Begin Operating as a Trust

With the bank account active, the trust can now operate, accept contributions, and make investments as per the terms outlined in the trust deed.

At Aspire2 Wealth Advisers, we specialise in guiding individuals through the maze of estate planning and asset protection. To discuss your options in more detail, please feel encouraged to speak with our expert team today for a no-obligation consult.

This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.