Discretionary (Family) Trust

Use Cleardocs to create all the documents you need to set up a Discretionary Trust (also known as a Family Trust). Cleardocs can also arrange your trust's ABN, TFN and GST registrations. In a Discretionary Trust, the trustee has discretion to pay beneficiaries any amount of the trust income or capital that the trustee believes is appropriate.

The Cleardocs Discretionary (Family) Trust package includes:

Time taken to complete15 minutes.

Cost $ 143.00 (inc. GST)

Printing Optional printing, binding and delivery for $ 49.50

Legal Sign-offThe master documents are written in plain language and are signed-off by our lawyers at Maddocks.

Cleardocs also has these types of trust available:

What information do you need to order a Discretionary (Family) Trust through Cleardocs?

You can download our checklist of the information required to order a Discretionary (Family) Trust package.

What is a "Family Trust" in Australia?

The term family trust refers to a discretionary trust set up to hold a family's assets or to conduct a family business.

An Australian family trust:

  • is generally established by a family member for the benefit of members of the 'family group';
  • can be the subject of a family trust election which provides it with certain tax advantages, provided that the trust passes the family control test and makes distributions of trust income only to beneficiaries of the trust who are within the 'family group';
  • can assist in protecting the family group's assets from the liabilities of one or more of the family members (for instance, in the event of a family member's bankruptcy or insolvency);
  • provides a mechanism to pass family assets to future generations; and
  • can provide a means of accessing favourable taxation treatment by ensuring all family members use their income tax "tax-free thresholds".

A family trust has many other potential benefits, including avoiding issues such as challenges to the will following a death of a senior member of the family.

The Discretionary Trust Deed

The terms and conditions under which a discretionary (family) trust is established and maintained are set out in its deed.

The trust is established by the trust's settlor and trustee (or trustees) signing the trust deed, and the settlor giving the trust property (the "settled sum") to the trustee.

Cleardocs Discretionary Trust Deeds purchased in or after 2004 are compliant with the High Court's decision in Bamford's case and related ATO rulings.

Information about the settlor

The settlor's function is to give the assets to the trustee to hold for the benefit of the trust's beneficiaries on the terms and conditions set out in the trust deed. The settlor executes the trust deed and then, generally, has no further involvement in the trust.

The settlor of a Discretionary Trust must be an independent person. That person, or his or her spouse or children, cannot be beneficiaries of the trust and should not be trustees. A settlor will often be a family friend or a solicitor or an accountant who will not be a beneficiary or a trustee.

Information about the trustee

The trustee is responsible for the trust and its assets. The trustee has broad powers to conduct the trust, and manage its assets. The trustee can be a corporation or individuals.

In a discretionary (family) trust, the trustees are usually Mum and Dad (or a company of which Mum and Dad are the shareholders and directors). Their children and any other dependants are usually listed as beneficiaries.

Trust income — distributions and income tax

The Cleardocs Discretionary (Family) Trust is a trust under which the trust's trustee or trustees may distribute trust income or other trust property:

  • among the beneficiaries named in the schedule to the trust deed, or
  • to any one or more people who fit within the description of the general class of beneficiaries which is also set out in the schedule.

The distributions of trust income or other trust property may be made to any number of these eligible beneficiaries and in any proportion at the trustees' complete discretion.

If you require a trust in which the beneficiaries have a fixed interest in the income or other trust property, or where the class of eligible beneficiaries is restricted (say, to only blood relatives of the named beneficiaries), then you must seek legal advice. Please contact us so we may refer you to Maddocks who can provide you with a free estimate of fees for drafting a deed to suit your needs.

A trust does not have to pay income tax on income that is distributed to the beneficiaries, but does have to pay tax on undistributed income. The trustee is free to distribute trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries' personal marginal tax rates. The beneficiaries then pay the tax on distributions made to them.

For example, if an adult beneficiary of the trust only receives income from a trust and has the benefit of the tax-free threshold for the year, the trustee could distribute part of the family trust's income to this person. The result is that the beneficiary will receive some income but may not have to pay tax if that amount is less than the tax-free threshold. If the distribution to the beneficiary exceeds his or her tax-free threshold, the excess amount will be taxed at the beneficiary's personal marginal tax rate.

Distributions received from a trust are not a special form of income, but instead form part of a beneficiary's assessable income. If the beneficiary receives income from other sources in addition to distributions from the trust, all of the income will be taxed together.

Even if the beneficiary's income does exceed the tax-free threshold for a particular year, the rate of tax applied to the amount of the excess income over the tax-free threshold may be lower than for other beneficiaries because of the total income that these other beneficiaries already receive.

The trustee should also take care in relation to which beneficiaries are chosen to receive distributions, as penalty tax rates can apply to distributions made to minors.

Discretionary (Family) Trust elections — a word from the ATO on income distributions

One important aspect of a discretionary (family) trust that must be kept in mind is to whom the distributions are made.

First, all distributions must be made only to people who qualify under the terms of the trust deed to be beneficiaries of the trust.

Secondly, for trusts that have made a family trust election, the distributions may only be made to beneficiaries who are within 'the family group'. In relation to this the ATO states on its website:

A consequence of making a family trust election is that any distributions (broadly defined) outside the family group of the family trust by the trust will be taxed at the top marginal rate applying to individuals plus the Medicare levy.
From ATO's website

In other words, if a discretionary (family) trust makes a family trust election and then pays out to someone not a member of the family group, they will be taxed at the maximum rate possible! Be warned.

Cleardocs Discretionary Trust Minutes Package — keeping proper records

Cleardocs offers a range of meeting minutes and resolutions for administration of your Discretionary (Family) Trust. It costs $66.00 including GST for your Trust's first Minute or Resolution. Your Trust then has unlimited use of the Discretionary Trust Minutes Package for 12 months.

If you purchase your Trust's 12 months unlimited use of the Discretionary Trust Minutes Package when you set up your Discretionary (Family) Trust through Cleardocs, you will receive a 15% discount on the package.

Seek legal advice

The Discretionary (Family) Trust information here should be considered general in nature, and in no way interpreted as legal advice. You must always seek your own independent legal, accounting and financial advice about your particular situation. The summary on this page is for information purposes only.

Questions or further information

If you have questions:

  • about how to use Cleardocs, contact the Cleardocs helpline on 1300 307 343.
  • about legal issues, contact the Cleardocs helpline on 1300 307 343. If you need advice, we will arrange for you to speak with a lawyer at Maddocks. The firm provides a free legal helpline in relation to the documents Cleardocs provides. If you require other legal advice in relation to your particular circumstances, then this will be charged for.
  • Bamford case compliant
  • Extensive online help and local phone support
  • Easy to use question interface
  • Full range of tailored discretionary (family) trust set up documents
  • Simple process for ABN, TFN & GST applications
  • Register the corporate trustee of your discretionary trust through Cleardocs
  • Change the trustee of your discretionary trust through Cleardocs
  • Copy function for address details