Discretionary Trusts: What You Need To Know (2025 Updated)

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Setting up a trust is a common and effective way to hold property for someone else. In fact, many businesses continue to rely on trusts as an integral part of their structure, providing robust asset protection and competitive tax management strategies that are particularly relevant in 2025.

Put simply, a person or company (the trustee) holds property on behalf of another party (the beneficiary). This arrangement has evolved over time with regulatory changes, ensuring trusts remain a valuable tool for both individuals and businesses.

A trust is not a separate legal entity. Instead, the assets of the trust are legally owned by the trustee, who is required to manage these assets solely for the benefit of the beneficiaries. For additional insights on structuring your business and protecting your assets, you might also explore our business structure options.

There are different types of trusts – each governed by its own set of rules and stipulations. It’s important to discern the differences, for example, between discretionary trusts and unit trusts, or to understand when a corporate trustee might offer enhanced benefits. To help you navigate these options, our comprehensive legal resources provide up-to-date information on trust arrangements in Australia.

Let’s delve into some key features and differences in trust types, reflecting the current legal landscape in 2025.

Discretionary Trusts

A discretionary trust – often referred to as a family trust – is widely utilised for tax planning and asset protection by families and small businesses alike.

So, what makes discretionary trusts unique?

The defining feature of discretionary trusts is how profits are distributed. As the name implies, the trustee has the discretion to decide which beneficiaries receive distributions and in what proportions. This flexibility means that distributions can be strategically managed to optimise tax outcomes and asset protection, a benefit that has only grown in importance in 2025.

In other words, the benefits you receive from a discretionary trust are not fixed – they will vary according to the trustee’s decision and the specific terms outlined in the trust deed.

Nonetheless, the trustee’s power is not absolute; their decisions are governed by the trust instrument to ensure that the actions taken are consistently in the beneficiaries’ best interests.

Unit Trusts

Unit trusts, by contrast, distribute profits in direct proportion to the number of units held by each beneficiary. Each unit represents a fixed share of the trust’s returns, making the distribution process more predictable and structured.

This fixed, predetermined allocation distinguishes unit trusts from discretionary trusts, where the distribution is entirely at the trustee’s discretion.

Who Is Involved In A Trust?

A trust relationship typically involves three main parties:

1. Trustee

The trustee is responsible for executing and managing the trust. They must administer the trust’s assets solely for the benefit of the beneficiaries. If you’re considering acting as a sole trustee, feel free to read our guide on operating as a sole trader to understand how personal liability may apply.

Because trustees legally own the trust’s assets, they are also accountable for any liabilities incurred by the trust. This is an important consideration when deciding between an individual trustee and a corporate trustee structure.

2. Beneficiaries

Beneficiaries are the individuals or entities who receive the benefit from the trust. Depending on the trust type, their entitlements may be fixed (as with unit trusts) or decide at the discretion of the trustee (as with discretionary trusts).

3. Settlor

The settlor is typically an independent party who establishes the trust by signing the trust deed. Although their ongoing role is minimal, their initial contribution is crucial in setting the framework for the trust’s operation.

Why Should I Set Up A Discretionary Trust?

Establishing a discretionary trust offers several key benefits:

Enhanced asset protection
Fewer formalities compared to other structures
Effective and flexible tax planning – the trustee’s discretion in distributing profits can be tailored to optimise tax outcomes
Flexibility to include an unlimited number of investors or beneficiaries

What Is A Corporate Trustee?

As mentioned, the trustee is the party entrusted with managing the trust’s assets for the benefit of the beneficiaries. This role can be filled by either an individual or a company.

When a company acts as the trustee, it is known as a corporate trustee. This structure requires the involvement of directors and shareholders, thereby offering a more formal organisational framework. For further details on the advantages of a corporate setup, please refer to our company set-up services.

One notable advantage of a corporate trustee is the limited liability it offers – unlike an individual trustee, a corporate trustee’s liabilities are restricted to the company’s assets rather than extending to personal assets.

Trusts in 2025: What Has Changed?

As of 2025, trust law in Australia has continued to evolve with several recent regulatory reforms and tax updates. These changes provide clearer guidelines for trust administration and improved mechanisms for asset protection. Staying informed about these updates is critical, and our legal guides offer the latest insights and best practices tailored to the current environment.

Need Help?

Setting up a trust is an exciting way to manage property and strategically plan for your business future, but it can also become complex without the right guidance. With the evolving legal landscape in 2025, it’s more important than ever to seek expert advice tailored to your individual circumstances.

If you’d like a consultation on your trust options or need assistance in updating your legal structure, reach out to us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat. Also, be sure to check out our legal guides for further resources and updated information to help safeguard your assets and optimise your tax planning in 2025.

Rowan Gardoce

Rowan is the Marketing Coordinator at Sprintlaw. She is studying law and psychology with a background in insurtech and brand experience, and now helps Sprintlaw help small businesses

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