How to set up a discretionary family trust in Australia
To set up a discretionary family trust in Australia, you draft and execute a trust deed, appoint a trustee (often a corporate trustee), have the settlor settle a nominal sum, pay any state stamp duty on the deed, obtain an ABN/TFN, and consider a Family Trust Election with the ATO. Trust law is governed by general equity, the Trustee Acts of each state, and tax law in the Income Tax Assessment Acts.
The framework
Trust law arises from general equity and is supplemented by state Trustee Acts (e.g. Trustee Act 1958 (Vic), Trustee Act 1925 (NSW)). Tax treatment is governed by the Income Tax Assessment Act 1936 (Cth) and Income Tax Assessment Act 1997 (Cth), particularly section 100A and Division 6.
The process
Decide if a trust is right
A discretionary trust offers flexibility but adds complexity and ongoing costs. Consider asset protection, succession, tax distribution, and the section 100A ATO position before proceeding. Get tax advice first.
Choose a trustee
A trustee can be an individual or a Pty Ltd corporate trustee. Most planners recommend a corporate trustee for liability protection and continuity. The corporate trustee must be incorporated under the Corporations Act 2001 (Cth).
Identify the settlor and beneficiaries
The settlor settles a nominal sum (commonly $10) on the trust and should not be a beneficiary. Identify primary and secondary beneficiaries (spouse, children, grandchildren, related entities).
Appoint an Appointor (Principal)
The Appointor (sometimes called Principal or Guardian) has the power to remove and appoint trustees. This is a critical control role and should be considered in succession planning.
Draft the trust deed
The trust deed sets out the trust's rules: trustee powers, beneficiary classes, distributions, vesting day, and amendment powers. Engage a solicitor to draft a deed tailored to your circumstances.
Execute the deed and settle
The settlor pays the settled sum to the trustee, and all parties (settlor, trustee, appointor) execute the deed. Execution should follow state requirements.
Pay stamp duty (where applicable)
Some states (e.g. NSW, VIC) impose stamp duty on the establishment of a discretionary trust. Lodge the deed for stamping with the relevant state revenue office under each state's Duties Act.
Apply for ABN and TFN
Apply for an Australian Business Number and Tax File Number for the trust through the Australian Business Register. Register for GST if applicable.
Family Trust Election (FTE)
Consider making a Family Trust Election under Schedule 2F of the Income Tax Assessment Act 1936. An FTE allows access to certain tax concessions but introduces family trust distribution tax for distributions outside the family group.
Maintain ongoing compliance
Maintain financial accounts, annual trustee resolutions before 30 June for distributions, lodge trust tax returns, and review section 100A reimbursement arrangements regularly. Document all trustee decisions.
Forms and templates
- Trust deed (drafted by solicitor)
- ABN application (Australian Business Register)
Common mistakes
- Settlor or appointor being a beneficiary
- Not stamping the deed where required
- Missing the 30 June trustee resolution deadline
- Ignoring section 100A risks for adult beneficiary distributions
- Using a generic deed without legal review
Get this process right with Quillio
Quillio can help summarise your trust deed clauses, prepare annual trustee resolutions, and produce distribution checklists aligned with section 100A guidance. See /practice-areas/wills-estates or start a free trial.
This guide is general information, not legal or tax advice. Trust structures are technical and ATO scrutiny under section 100A has increased. Engage a tax adviser and an experienced solicitor.
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