Should I set up a family trust for asset protection and tax planning?

What is a family trust?

A family trust is a legal structure used to hold and manage assets for the benefit of family members. Also known as a discretionary trust, it gives the trustee the power to decide how income and capital are distributed among the beneficiaries.

In Australia, family trusts are commonly used by individuals and business owners to manage wealth, protect assets from risk, and legally reduce tax obligations.

Why consider a family trust?

If you’re building wealth or operating a business, setting up a family trust may be a strategic move. Here’s why many Australians explore this option:

Asset protection: Assets held in a trust are generally shielded from personal legal action. For example, if a beneficiary is sued or declared bankrupt, the trust’s assets are not automatically available to creditors.

Tax flexibility: Trusts allow income to be distributed among beneficiaries, which can help reduce overall tax payable. This is particularly useful for families where some members are in lower tax brackets.

Succession planning: Trusts can help ensure a smooth and tax-effective transition of wealth between generations. They allow you to maintain control of assets even after your death.

Business continuity: Family trusts are often used to separate business assets from personal wealth. This can simplify succession planning, reduce personal liability, and support long-term strategic growth.

How does a family trust work?

When you set up a family trust, several key parties are involved:

  • Settlor: The person who creates the trust.

  • Trustee: The individual or company responsible for managing the trust and distributing income or capital.

  • Beneficiaries: The family members or other individuals who may benefit from the trust.

  • Appointor: The person with the power to appoint or remove trustees.

Once established, the trust can hold various assets—such as cash, shares, property, or business interests. Each year, the trustee decides how income is distributed among beneficiaries.

Is a family trust right for you?

While family trusts offer many benefits, they’re not suitable for everyone. Consider the following before making a decision:

You might benefit from a family trust if:

  • You have a growing investment portfolio or business

  • You want to minimise tax within legal boundaries

  • You’re looking to protect assets from potential creditors

  • You’re planning to pass on wealth to future generations

You may want to reconsider if:

  • Your income is low and you don’t have high-value assets to protect

  • You’re not prepared to handle the administrative and compliance costs

  • You want all income to go to a single individual with no flexibility required

What are the risks and limitations?

Although family trusts offer flexibility and protection, they also come with responsibilities:

  • Set-up and admin costs: Establishing a trust typically costs between $1,000–$3,000, with ongoing accounting and legal costs.

  • Trust laws are complex: Mismanagement can result in penalties, especially if distributions or documentation are incorrect.

  • Loss of personal access: Assets transferred into the trust are no longer owned by you personally, which can be limiting if you later change your goals.

That’s why it’s essential to get professional advice before setting up a trust.

Common uses for family trusts in Australia

  • Holding investment properties or shares

  • Operating a business while minimising personal liability

  • Managing intergenerational wealth transfers

  • Income splitting across family members

  • Protecting assets in case of divorce or bankruptcy

McMillans can help you decide

At McMillans, we’ve helped hundreds of Australian families and business owners set up and manage trusts that align with their financial and personal goals. Our team provides:

  • Tailored advice on trust structuring

  • Compliance support for annual tax and legal obligations

  • Strategic planning for income distribution and asset protection

  • Coordination with legal advisors to ensure everything is watertight

Ready to explore a family trust?

Setting up a family trust can be a powerful financial move—but it needs to be done correctly.

Book a consultation with McMillans today to discuss whether a family trust is the right structure for your situation.

Estate Planning, Business StructureCristy Houghton