How To Set Up and Use Trusts in Australia for Business: A Legal Overview

Thinking about using a trust for your business, investments or asset protection? Trusts can be a smart way to manage assets and distributions in Australia, but they need to be set up and run properly to deliver the benefits you’re expecting.

In this practical guide, we’ll explain how trusts work for business, when a trust might be the right fit (and when it might not be), the exact steps to set one up, and the key legal and compliance obligations you’ll need to meet over time.

Quick heads up: trusts can have tax advantages when used appropriately, but this article is general legal information only. Always speak with your accountant or tax adviser for advice about your tax position.

What Is a Trust in Australia?

A trust is a legal relationship where one person or company (the trustee) holds and manages assets for the benefit of others (the beneficiaries). Unlike a company, a trust isn’t a separate legal entity, but it’s recognised by Australian law and the Australian Taxation Office (ATO) for legal and tax purposes.

For business and investment purposes, the most common trust structures are:

• Discretionary (Family) Trust: The trustee generally has discretion each year to decide how to distribute income and/or capital among beneficiaries, within the rules in the trust deed. Popular for family businesses and estate planning.
• Unit Trust: Beneficiaries (unit holders) have fixed entitlements to income and capital based on the number of units they hold. Common in joint ventures and investment syndicates.
• Bare Trust: The trustee holds assets for a single beneficiary who has a present, absolute entitlement. These often appear in specific arrangements (for example, some SMSF structures).

Each trust type has different legal and tax implications. The trust deed sets the rules, so the detail matters a lot.

If you’re after a deeper primer before you decide, our overview of trusts in Australia runs through asset protection and tax planning concepts at a high level.

Should You Use a Trust for Your Business? Benefits and Limits

Trusts can offer real advantages, especially for family businesses and investment vehicles. But they’re not a one-size-fits-all solution. Here’s a balanced look at the common benefits and the limits you should be aware of.

Key Benefits

• Distribution flexibility (within the deed): A discretionary trust can let the trustee allocate income to different beneficiaries each year (subject to the deed and tax rules). This can manage after-tax outcomes when used lawfully and with proper accounting.
• Asset segregation: Trust assets are held by the trustee on trust, not in your personal name. When the trust is correctly structured and operated, this can help separate business assets from your personal asset pool.
• Succession and estate planning: A trust can centralise control of assets and provide continuity if a controller passes away or steps back, which can reduce disruption for the business or family.
• Privacy: Trusts generally don’t have the same public disclosure requirements as companies (for example, there’s no ASIC register for trusts themselves).

Important Limits to Understand

• Asset protection isn’t absolute: A trust is not a magic shield. Poorly drafted deeds, inadequate record-keeping, personal guarantees, or breaches of trustee duties can expose trust assets to claims. Creditors may also access the trustee’s right of indemnity against trust assets for trust liabilities.
• Trustee discretion is bounded: Even in a discretionary trust, distributions must follow the deed and the law. Anti-avoidance rules, streaming rules and family trust elections can limit how “flexible” distributions are in practice.
• Ongoing compliance: Trusts need annual resolutions, financial statements and tax returns. If you don’t make valid distribution resolutions in time, the trustee can be taxed at top marginal rates on undistributed income.
• Costs and complexity: There are upfront setup costs, possible stamp duty on the deed in some states, and ongoing administrative effort compared with simpler structures.

If a trust isn’t the right fit, you may prefer a company for limited liability, or a simpler structure. Setting up a company can be done on its own or as a corporate trustee for the trust using a service like Company Set Up if that suits your plan.

Step-By-Step: How To Set Up a Trust in Australia

Setting up a trust is about getting the right people, the right deed, and the right registrations in place - then running it properly. Here’s a clear roadmap.

1) Clarify Your Goals and Compare Structures

Start with the “why.” Are you looking for controlled distributions in a family context? A joint venture where each party has fixed entitlements? Or asset separation from an operating business?

Compare a trust with other structures you’re considering (for example, a company or partnership) so you can weigh liability, control, tax and administrative effort. If your business will have multiple owners, factor in governance and dispute-management considerations early.

2) Choose the Trust Type and Controller Roles

Pick the structure that serves your goals:

• Discretionary Trust: Useful where beneficiaries change or you want discretion about distributions each year.
• Unit Trust: Useful where contributions and entitlements are proportionate and fixed (e.g. two investors putting in capital 50/50).

Decide who will fill the key roles:

• Trustee: Either an individual or a company. Many business owners prefer a corporate trustee for cleaner governance and separation, though the trustee still carries fiduciary and statutory duties.
• Beneficiaries: The people or entities eligible to benefit under the deed. Family trusts typically define a family group quite broadly (check the deed scope).
• Appointor/Principal: Often has the power to remove and appoint the trustee. This is a key control lever and should be chosen with care.
• Settlor: The person who “settles” the trust with a nominal amount. They should be independent from the beneficiaries and trustee to avoid tax issues. You can read more about the role of a settlor if you’re unsure who can do this.

3) Draft a Tailored Trust Deed

The deed is the rulebook. It covers the trustee’s powers and limits, who can benefit, how and when distributions can be made, streaming of different income categories, what happens if a controller exits and how the trust can be varied or wound up.

A generic template often misses critical details (for example, streaming rules or an appointor mechanism). A well-drafted deed also helps avoid “sham trust” allegations and future disputes. If your trust will operate a business, ensure the deed is compatible with your planned activities and banking requirements.

4) Execute and (If Required) Stamp the Deed

Once the deed is signed and dated, the settlor pays the nominal settlement sum to the trustee. In some states or territories, trust deeds must be stamped (and duty paid) within a set timeframe. Check the deadlines and processes that apply where you are, as penalties for late stamping can be significant.

5) Get the Right Registrations and Open Accounts

Most trusts will need a Tax File Number (TFN) and often an Australian Business Number (ABN). If your turnover will exceed the GST threshold, register for GST. If your trustee is a company, register it with ASIC and obtain an ACN. This broader checklist is covered in trust requirements in Australia (ACN, ABN, TFN).

Open a dedicated bank account in the trustee’s name as trustee for the trust. Keep trust money and property strictly separate from personal and other business funds.

6) Put Governance in Place Early

• Set up internal processes for trustee meetings, minutes and resolutions.
• Establish a schedule for year-end distribution resolutions (before 30 June).
• If you have co-founders behind a corporate trustee, document decision-making using a Shareholders Agreement and a clear company constitution.

Strong governance helps demonstrate the trust is real, properly administered and not just a paper structure.

Legal Duties, Tax and Ongoing Compliance

Running a trust is not “set and forget.” Trustees have ongoing legal duties, and there are annual tax and reporting obligations to maintain.

Trustee Duties You Can’t Ignore

• Act in beneficiaries’ best interests: Trustees owe fiduciary duties, must follow the trust deed, and must not use trust assets for personal gain or for purposes outside the deed.
• Keep proper records: Maintain the original deed, any deeds of variation, minutes, resolutions, financial statements and tax returns. Keep trust and personal assets strictly separate.
• Exercise powers properly: Distributions and decisions must be made in line with the deed and the law. If the deed allows discretion, it must be exercised fairly and for proper purposes.

Key Tax and Reporting Tasks

• Annual distribution resolutions: Make valid income (and where relevant, capital) distribution resolutions by the required deadline (usually before 30 June). Late or invalid resolutions can push tax to the trustee at top marginal rates.
• Trust tax return and statements: Prepare annual financials and lodge the trust tax return. Consider whether a family trust election or interposed entity election is appropriate in your context (speak with your tax adviser about this).
• GST, PAYG and payroll: If you’re trading through the trust, register for GST if required, and comply with PAYG withholding and payroll obligations if you have workers.

Again, the above is general information. Trusts are sensitive to tax settings and deadlines, so get personalised tax advice alongside your legal setup.

Common Risks and How To Manage Them

• DIY or outdated deeds: Ambiguous or non-compliant deeds create disputes and tax risk. Use a tailored deed and keep it current using a formal Deed of Variation if you need to change terms later.
• Commingling funds: Mixing trust funds with personal or other business funds can undermine asset separation and create accounting and compliance issues.
• Missing resolutions: If income distributions aren’t resolved properly and on time, expect unfavourable tax outcomes.
• Personal guarantees: Signing personal guarantees (e.g. for leases or finance) can expose your personal assets regardless of your trust structure. Negotiate carefully and seek advice before signing.

What Legal Documents Will You Need?

The right paperwork helps your trust operate cleanly, control risk and stay compliant. The exact list will depend on your activities, but most trading trusts will consider the following.

• Trust Deed: The master document setting out powers, beneficiaries and distribution rules. This should be tailored to your goals and planned activities.
• Trustee Resolutions and Minutes: Written records of decisions, including annual distribution resolutions and day-to-day decisions by the trustee.
• Deed of Variation: If you need to update your trust terms, use a deed (and follow the variation power in the original deed) to record valid changes.
• Shareholders Agreement: If your trustee is a company with multiple owners, a Shareholders Agreement sets out decision-making, exits and dispute pathways.
• Unitholders Agreement: For a unit trust, an Unitholders Agreement clarifies rights and obligations between unit holders beyond the deed.
• Customer or Supply Contracts: If the trust is trading, lock in clear terms with a Goods and Services Agreement to manage scope, payment, liability and IP.
• NDA (Confidentiality): Use an NDA when sharing sensitive information with partners, suppliers or contractors.
• Privacy Policy and Website Terms: If you collect personal information or run a website or app, a Privacy Policy and platform terms help you comply and set expectations with users.
• IP Protection: If brand value matters, consider registering your trade marks to protect your name and logo via Register Your Trade Mark.

Not every trust will need all of these on day one, but most operating businesses will need several. Getting them right early reduces disputes and costs later.

Where Does a Corporate Trustee Fit In?

Many business owners appoint a company as trustee to simplify control and succession. It can help separate roles, streamline decision-making and make changes to controllers easier over time (by changing directors or shareholders rather than replacing an individual trustee).

However, a corporate trustee is not a liability cure-all. The trustee (even if it’s a company) is primarily liable to third parties it contracts with as trustee, and directors can still face exposure for breaches of duties, insolvent trading or personal guarantees. It’s wiser to view a corporate trustee as a governance and administrative tool rather than a fail-safe shield.

If you plan to use a new corporate trustee, consider incorporating it first through Company Set Up, then naming it as trustee in the trust deed from the outset.

Key Takeaways

• A trust is a legal relationship (not a company) where a trustee holds assets for beneficiaries - great for distribution control and succession when set up and run correctly.
• Discretionary and unit trusts are the most common for business; choose based on whether you want flexible versus fixed entitlements, and what your deed allows.
• Setup involves selecting key roles, drafting a tailored deed, executing and (if required) stamping it, registering for TFN/ABN/GST and setting up clean governance and bank accounts.
• Trustee duties are strict: follow the deed, keep clean records, make timely distribution resolutions and maintain proper separation of trust assets.
• Asset protection has limits - personal guarantees, poor administration or breaches of duty can still expose assets; treat a corporate trustee as good governance, not a silver bullet.
• Trading trusts usually need a suite of documents: a strong trust deed, resolutions, variation deeds, owner governance documents, customer/supplier contracts, confidentiality and brand protection.

If you would like a consultation on setting up or managing a trust for your business in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.