Protecting your assets and minimising tax: An overview of trusts

Bill Shorten kicked off this financial year with a pledge to increase the tax rate for income distributed through selected trusts. This sparked debate amongst politicians and community members alike on the effect the law change would have on Australians. Some agreed that it is a fair approach, while others felt “it was a direct attack on small business owners.”

In a recent study by The Australia Institute , it was reported that approximately 21.6% of Australia’s national income was run through trusts.

The report goes on to say:

“ATO figures show there are 823,448 trusts with assets of $3.1 trillion and a total business income of $349.2 billion” – The Australia Institute.

Despite the media coverage, many Australians are unaware of the potential benefits to be gained by setting up a trust structure for their investment portfolio or business.

Here we explain the nature of a trust and how you may be able to use its structure to your advantage.


A trust is established when a person transfers money or property to another person / company (“trustee”) and the trustee, as the legal owner runs and operates the assets on behalf of their selected beneficiaries.

What this means is that a person can transfer money or assets to a person / company and appoint people of their choosing to benefit from the monies generated by those assets (“beneficiaries”). The beneficiaries do not own the property in the trust. They simply benefit from its income in accordance with the rules the trustee outlines in the trust deed.


There are a number of reasons why families and investors set up trusts. It really depends on your situation and what you are trying to achieve through the structure.

Some of the more popular reasons include:

1. Protection of assets

Asset protection is one of the key benefits offered through a family trust. Investors often protect their assets by transferring them to a trustee company or person, who then becomes the “legal owner” of those assets.

Assuming that a beneficiary of the trust was being pursued by creditors, the property in trust would be protected (providing it was transferred into the trust outside of the claw-back period).

While there are rare circumstances that can lead to the collapsing of trusts, in most circumstances your assets will be protected from creditors. You should consult a lawyer to ensure that your proposed arrangement does not fall outside the scope.

2. Inheritance and estate management

The traditional method of inheritance is for ownership of property to pass to the beneficiary. By this method, the beneficiary has sole discretion to deal with that property as and how they please. A testamentary trust will see that the assets are held on trust and distributed in accordance with the trust deed.

Testamentary trusts are often used in situations where there are minors involved who cannot manage assets on their own. It can also be used as an asset protection plan if it is likely a beneficiary (usually loved ones) will go on an irresponsible spending spree when you pass. A protective trust provides less flexibility to the beneficiaries and will see that your assets are managed according to your wishes.

3. Tax Savings

The third and currently controversial reason behind establishing a trust is profit distribution among the beneficiaries. If set up properly, this can result in taxation savings. In Australia, an individual does not pay tax on the first $18,200 earned in a financial year. The tax rate increases incrementally as per the tax bracket that is released each year.

As the law currently stands, families are allowed to distribute monies to low income earning beneficiaries at their discretion. The flow on effect is that individuals may take advantage of the tax-free threshold and lower tax rates for non-income or low-income earning individuals.  


The overall costs of setting up a trust can vary, depending on the complexity and uniqueness of the trust arrangement. For example, if you elect to use a company as the trustee, there will be company set-up costs and registration fees in addition to the legal fees of drafting the trust deed. Fern Lawyers are here and able to provide a quote - simply give us a call and we'd be glad to assist.