7 Types of Trusts in Australia You Need to Know

Trusts can seem like a complex financial tool reserved only for the ultra-wealthy. However, they are surprisingly versatile and can offer significant benefits for asset protection, tax planning, and managing your estate. For families and business owners in Australia, understanding how trusts work is a crucial step toward securing your financial future and ensuring your assets are managed according to your wishes.

Setting up the right structure can give you peace of mind, knowing your wealth is protected from creditors and that you are making the most of available tax advantages. Trusts are a cornerstone of effective financial strategy, allowing you to control how your assets are distributed to loved ones, support charitable causes, or provide for someone with special needs.

This guide will walk you through the concept of a trust and explore the seven most common types available in Australia. By the end, you'll have a clear understanding of how each one works, their unique benefits, and which might be the right fit for your financial goals.

What is a Trust?

A trust is a legal arrangement where one person or entity, the trustee, holds assets on behalf of other people, known as the beneficiaries. The person who creates the trust and transfers the assets into it is called the settlor. The rules that govern how the trust operates are set out in a legal document called the trust deed.

Think of a trust as a secure box where you place your assets. The trustee is the guardian of that box, legally bound to manage its contents according to the instructions you've provided in the trust deed. The beneficiaries are the people who will ultimately benefit from the assets inside the box.

The key parties involved are:

• Settlor: The individual or entity who establishes the trust by transferring the initial asset (e.g., a small sum of money) to the trustee. Once the trust is created, the settlor typically has no further role.
• Trustee: The person or company responsible for managing the trust's assets. The trustee has a legal duty—a fiduciary duty—to act in the best interests of the beneficiaries and follow the rules of the trust deed. This includes investing assets, keeping records, and distributing income or capital.
• Beneficiaries: The individuals or entities who are entitled to benefit from the trust's assets. Their entitlements depend on the type of trust and the instructions in the trust deed.

The 7 Main Types of Trusts in Australia

Trusts come in various forms, each designed for different purposes. Here are the seven main types you'll encounter in Australia.

1. Discretionary Trust (Family Trust)

A discretionary trust, commonly known as a family trust, is one of the most popular trust structures in Australia. Its key feature is flexibility. In this trust, the trustee has the "discretion" to decide which beneficiaries receive income or capital from the trust and in what amounts each year.

The beneficiaries do not have a fixed entitlement to the trust's assets. Instead, they are part of a wider class of potential beneficiaries, often family members. This structure allows the trustee to distribute income in a tax-effective manner, typically by allocating it to beneficiaries on lower marginal tax rates.

Benefits:

• Tax Flexibility: Income can be streamed to family members with lower incomes, potentially reducing the overall tax paid by the family unit.
• Asset Protection: Because beneficiaries don't own the trust assets, those assets are generally protected from creditors if a beneficiary faces bankruptcy or legal action.
• Estate Planning: Assets held in the trust do not form part of an individual's personal estate, so they are not subject to challenges against a will.

Drawbacks:

• Complexity: They can be complex to administer, requiring careful record-keeping and annual resolutions.
• Costs: Setting up and maintaining a discretionary trust involves legal and accounting fees.

2. Fixed Unit Trust

In a fixed unit trust, the beneficiaries' entitlements to the income and capital of the trust are fixed. These entitlements are represented by "units," similar to shares in a company. Each unitholder receives a distribution of income and capital in direct proportion to the number of units they hold.

For example, if you hold 25% of the units in a fixed unit trust, you are entitled to 25% of the trust's annual income and 25% of its capital. This structure is often used by unrelated parties who want to pool their funds for an investment, such as purchasing a commercial property.

Benefits:

• Certainty: Beneficiaries have a clear and fixed entitlement to income and capital.
• Ease of Transfer: Units can usually be bought and sold, making it straightforward for beneficiaries to enter or exit the trust.
• Access to Land Tax Thresholds: In some states, a fixed unit trust may be eligible for the land tax threshold, unlike discretionary trusts.

Drawbacks:

• Lack of Flexibility: The trustee has no discretion to vary income distributions. This can be a disadvantage for tax planning.
• Capital Gains Tax (CGT) Issues: The sale of units can trigger a CGT event for the unitholder.

3. Hybrid Trust

A hybrid trust, as its name suggests, combines features of both discretionary and fixed trusts. It has both unitholders with fixed entitlements and discretionary beneficiaries.

This structure is designed to offer the best of both worlds: the certainty of a fixed trust and the flexibility of a discretionary trust. For instance, the trustee might be required to pay a fixed amount of income to unitholders each year, with the discretion to distribute the remaining income among a class of other beneficiaries. Hybrid trusts are complex and require expert advice to set up correctly.

Benefits:

• Combined Flexibility and Certainty: Offers a fixed return for some beneficiaries while allowing for flexible, tax-effective distributions for others.
• Useful for Joint Ventures: Can be useful when different parties in a venture require different types of returns on their investment.

4. Testamentary Trust

A testamentary trust is a trust that is established through a will and only comes into effect after the will-maker's death. Instead of leaving assets directly to a beneficiary, the will directs that the inheritance be held in a trust for them.

This type of trust is a powerful estate planning tool. It can protect a beneficiary's inheritance from creditors, legal claims, or a relationship breakdown. It also offers significant tax advantages, especially for beneficiaries who are minors (under 18). Income distributed to a minor from a testamentary trust is taxed at adult marginal tax rates, rather than the much higher penalty rates that usually apply.

Benefits:

• Asset Protection: Shields inheritance from creditors or family law proceedings involving the beneficiary.
• Tax Benefits for Minors: Allows for significant tax savings on income distributed to children or grandchildren under 18.
• Control for Vulnerable Beneficiaries: Can be used to manage the inheritance of a beneficiary who is unable to manage their own finances due to age, disability, or addiction.

5. Special Disability Trust

A Special Disability Trust (SDT) is a specific type of trust designed to provide for the current and future care and accommodation needs of a person with a severe disability. To be eligible, the beneficiary must meet the definition of "severely disabled" as set out in social security law.

These trusts have specific rules about how the funds can be used, primarily for the beneficiary's care and accommodation. They offer significant concessions from Centrelink and the Department of Veterans' Affairs. A key benefit is that assets up to a certain limit (currently $832,750 as of July 2025) held within an SDT are exempt from the assets test for the beneficiary's social security payments.

Benefits:

• Social Security Exemptions: Helps the beneficiary maintain their eligibility for the Disability Support Pension.
• Financial Security: Provides a dedicated fund for the long-term care needs of a person with a severe disability.
• Gifting Concessions: Eligible family members who contribute to the trust may also receive a gifting concession from Centrelink.

6. Superannuation Trust (Self-Managed Super Fund)

A superannuation trust, most commonly a Self-Managed Super Fund (SMSF), is a trust structure used to save for retirement. In an SMSF, the members are also the trustees, meaning they are responsible for managing the fund's investments and complying with superannuation law.

The sole purpose of a superannuation trust is to provide retirement benefits to its members. The government provides significant tax concessions to encourage retirement savings. For example, investment earnings within the fund are typically taxed at a maximum of 15%, and once members enter the retirement phase, earnings on assets supporting their pension are tax-free.

Benefits:

• Tax Advantages: Offers a highly tax-effective environment for growing retirement wealth.
• Investment Control: Members have complete control over their investment strategy.
• Estate Planning: Can be used to effectively pass wealth to the next generation in a tax-efficient manner.

Drawbacks:

• Strict Regulations: SMSFs are heavily regulated by the Australian Taxation Office (ATO), and non-compliance can lead to severe penalties.
• Administrative Burden: The trustees are responsible for all administrative tasks, including record-keeping, annual audits, and reporting.

7. Charitable Trust

A charitable trust is established for a charitable purpose, such as the relief of poverty, the advancement of education or religion, or other purposes beneficial to the community. Unlike other trusts, it does not have specific individuals as beneficiaries; its beneficiary is the charitable purpose itself.

To be recognised as a charity, the trust must be registered with the Australian Charities and Not-for-profits Commission (ACNC). Charitable trusts are eligible for significant tax concessions, including income tax exemption, provided they meet strict legal requirements. They are a way for individuals and families to create a lasting legacy of giving.

Benefits:

• Tax Concessions: Eligible for income tax, FBT, and GST concessions.
• Lasting Legacy: Allows for long-term support of causes you care about.
• Public Trust: Registration with the ACNC provides transparency and builds public confidence.

Types of Trusts in Australia at a Glance

How to Set Up a Trust in Australia

Establishing a trust is a formal legal process that should not be undertaken lightly. While the exact steps can vary depending on the type of trust, the general process includes:

1. Choosing the Right Trust: Determine which trust structure best suits your financial and personal objectives.
2. Drafting the Trust Deed: This is the most critical step. The trust deed is a legal document that sets out the rules of the trust. It must be carefully drafted by a solicitor to ensure it is valid and achieves your goals.
3. Appointing a Trustee: Decide who will act as the trustee. This can be one or more individuals, or a company (a corporate trustee). A corporate trustee is often recommended for asset protection and succession purposes.
4. Settling the Trust: The settlor provides the initial trust property (the "settled sum," often a nominal amount like $10) to the trustee to formally establish the trust.
5. Stamping the Trust Deed: The trust deed must be stamped by the relevant state or territory revenue office.
6. Registering for ABN and TFN: The trust will need its own Australian Business Number (ABN) and Tax File Number (TFN) to operate.

Given the complexity and the significant legal and financial implications, it is essential to seek professional advice from a lawyer and an accountant before setting up a trust. They can provide tailored support to ensure the structure is right for you and complies with all legal obligations.

Take Control of Your Financial Future

Understanding the different types of trusts available in Australia is the first step toward leveraging these powerful tools for your benefit. Whether your goal is to protect your family's assets, minimise your tax bill, or create a lasting legacy, there is likely a trust structure that can help you achieve it.

Navigating the complexities of trusts can be overwhelming, but you don't have to do it alone. With the right professional guidance, you can implement a robust strategy that gives you peace of mind and secures your financial future for generations to come.

If you're ready to explore how a trust could work for you, speak to our team of experts. We can provide the tailored support you need to make informed decisions and build a secure financial foundation.

Disclaimer: This blog post provides general information only and does not constitute legal or financial advice. Consult with a qualified professional for personalized advice. Laws and regulations regarding trusts are subject to change. The information in this post is based on Australian law and may not be applicable in other jurisdictions. We are not liable for any actions taken based on the information provided in this blog post. Case studies and examples are for illustrative purposes only and do not guarantee specific outcomes.