K Point Wealth explains how trusts can be used for tax planning and asset protection.
The use of trusts in Australia continues to grow, with many investors using them to hold assets such as shares, ETFs and managed funds.
According to the Australian Taxation Office (ATO), there are now more than one million trusts operating nationally, collectively generating hundreds of billions in income each year. For many Australians, trusts play an important role in structuring and protecting wealth.
What is a trust?
A trust is not a separate legal entity like a company. Instead, it is a legal arrangement between a trustee (who controls the assets) and beneficiaries (who benefit from those assets).
Trusts are governed by a trust deed, which outlines how the trust operates, including how income is distributed and what assets can be held.
The most common structure is a discretionary (or family) trust. This gives the trustee flexibility to distribute income and capital among beneficiaries in a way that best suits the family’s financial situation.
Why use a trust?
Trusts are typically used for two key reasons:
- Tax planning
- Asset protection
Tax planning benefits
Family trusts allow income to be distributed to beneficiaries in a tax-effective way. This often involves allocating income to individuals on lower marginal tax rates, reducing the overall tax paid by the family group.
However, it’s important to ensure distributions are legitimate and comply with ATO guidance. Arrangements designed purely to avoid tax—without beneficiaries genuinely receiving the benefit—may attract scrutiny.
There are also strict rules around distributing income to minors. In many cases, income distributed to children under 18 is taxed at significantly higher rates unless specific conditions are met.
Trusts can also provide capital gains tax (CGT) advantages. Assets held for more than 12 months may qualify for a 50% CGT discount when sold.
It’s important to note that losses within a trust generally cannot be distributed to offset an individual’s personal income.
Asset protection advantages
One of the key benefits of a trust structure is the separation of ownership.
Assets held within a trust are owned by the trust—not by individual beneficiaries. This can provide protection in situations where a beneficiary faces legal action, bankruptcy, or creditor claims.
While the assets themselves are typically protected, any income distributed to a beneficiary may still be accessible to creditors. The trustee retains control over whether distributions are made.
Compliance and ongoing management
Trusts come with ongoing responsibilities, including record-keeping, tax reporting, and compliance with ATO requirements. Failing to meet these obligations can lead to unintended tax consequences.
Is a trust right for you?
Trust structures can be highly effective—but they are not suitable for everyone. The right approach depends on your financial goals, family situation, and long-term strategy.
Speak with the team at K Point Wealth for tailored advice on whether a trust structure is appropriate for your circumstances.
Get expert advice
Call us on 07 3891 5666 or email admin@kpointwealth.com.au for a no-obligation chat.
Source:
Vanguard – Using trusts
