Family Trust / Discretionary Trust
A Family Trust (also commonly called a Discretionary Trust) is the most widely used trust structure in Australia for families, related parties and long-term wealth planning. It is typically used where the people involved are closely connected — such as spouses, children, extended family members, or very trusted associates — and where flexibility is required in how income and capital are distributed each year.
Family and Discretionary Trusts are commonly used to hold residential investment properties, operate small to medium-sized businesses, and manage family investments. One of their key advantages is the ability for the trustee to decide each year who receives the trust’s income, allowing distributions to be tailored to the family’s circumstances at the time. This can assist with tax planning, cash-flow management and adapting to life changes such as retirement, illness or business restructuring.
When correctly structured, a Family or Discretionary Trust can also provide a level of asset protection by separating legal ownership of assets from personal ownership. This can help shield family wealth from business risk, relationship breakdowns and other unforeseen events. Because these trusts are generally used by people who already have strong personal relationships, they rely heavily on careful drafting of the trust deed and clear succession planning to ensure long-term control and protection.
How does this differ from the Family Protection Trust below? Read on here.
Family Protection Trust
(also known as a Living Trust or Bloodline Trust)
A Family Protection Trust is designed primarily for long-term asset protection and estate planning, rather than short-term income distribution. It is often referred to as a Living Trust or Bloodline Trust because it is established during a person’s lifetime and is structured to protect assets for their children and future generations, rather than allowing wealth to be lost through divorce, bankruptcy or poor financial decisions.
This type of trust is commonly used to hold significant assets such as the family home, investment properties, or large investment portfolios. The intention is to remove those assets from personal ownership over time and place them into a protective structure that continues after death. By doing so, assets can be preserved within the family bloodline and managed under controlled conditions rather than being transferred outright to beneficiaries.
A properly designed Family Protection Trust can help ensure that family wealth is not exposed to unnecessary risk if children later enter business ventures, relationships, or legal disputes. It can also reduce the likelihood of family conflict after death by clearly defining how assets are to be controlled and used, rather than relying solely on a will. This makes it a powerful tool for families who wish to protect not just their assets, but their legacy.
How does this differ from the standard family/discretionary Trust above? Read on here.
Unit Trust
A Unit Trust is most commonly used where two or more independent parties are coming together for a joint business venture or investment, particularly where the parties are not related and want clearly defined ownership interests. Instead of beneficiaries receiving discretionary distributions, ownership is divided into fixed “units”, similar to shares in a company, with each party holding a specific number of units.
This structure is often recommended for business partnerships, commercial property ownership, development projects, or situations where unrelated investors wish to pool funds while maintaining certainty over their respective entitlements. Income and capital from the trust are distributed in proportion to the units held, providing transparency and reducing the potential for disputes between unrelated parties.
Unit Trusts can also be combined with other structures, such as companies or family trusts, as the unit holders. This allows families or business owners to still benefit from asset protection and tax planning strategies while participating in joint ventures with third parties. Proper structuring is critical, as unit trusts involve different tax and control considerations compared to discretionary trusts, particularly where borrowing and capital gains are involved.
Testamentary Trust
(Trust created through a Will after death)
A Testamentary Trust is a trust that is created under a person’s Will and only comes into existence after they pass away. Unlike a living trust, it does not operate during the person’s lifetime, but is instead activated upon death as part of the estate administration process. Testamentary trusts are commonly used to protect inherited assets and control how beneficiaries receive their inheritance.
One of the main purposes of a testamentary trust is to keep assets within the family bloodline while providing protection for vulnerable beneficiaries, such as young children, financially inexperienced heirs, or beneficiaries who may later face relationship or financial risks. Rather than giving assets directly to beneficiaries, they are held in trust and distributed under controlled conditions over time.
Testamentary trusts can also offer tax advantages for beneficiaries, particularly where income is distributed to minors, and they can be used to manage complex family situations such as blended families or unequal distributions. When drafted correctly, they provide flexibility for the trustee while still preserving the deceased person’s intentions and protecting family wealth for future generations.
Private Trust
A Private Trust is not a separate type of trust in its own right, but rather a description of how a trust is administered. A private trust can be any of the above trust types — discretionary, unit, family protection or testamentary — provided it does not have a Tax File Number (TFN), Australian Business Number (ABN), or appear on public government registers.
Private trusts are often used where a trust is intended purely for asset holding or estate planning purposes rather than for active business or income production. Because they are not registered for tax or business activity, they do not lodge tax returns unless they derive income, and they are not searchable on public databases.
The main attraction of a private trust is confidentiality. Assets can be held within a trust structure without creating a public footprint, providing an additional layer of privacy for families who value discretion in their financial affairs. However, this type of structure must be carefully designed and monitored to ensure it remains compliant with tax and trust law, particularly if circumstances change and income is later introduced.