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Buying through a family trust has been a common way of investing in property in Australia given the protection it provides. If you are beginning to explore the possibility of holding an investment property in a family trust, you need to understand how it works and how it can benefit you in the long run.

Setting up a family discretionary trust or a family trust is simple — but whether it is worthwhile for you or not, depends on the assets you intend to hold in the trust, your income, as well as that of the beneficiaries in the trust. A trust structure is beneficial when the benefits overweigh the costs of setting up and managing a trust.

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What are the benefits of setting up a family trust?


A family trust allows you to divide the income from your investment portfolio among family members in the most tax-effective manner each year, helping to minimise the tax liability of each member. Further, if the trust has held the property for more than a year, you only need to pay 50% capital gains tax. However, note that even if the property held by a trust is making a loss, the benefits of negative gearing will not be applicable.

Asset protection

One of the biggest advantages of owning a property in a family trust is that the property is not owned by an individual but the trust itself. This means that the property is protected from creditors even if any of the beneficiaries goes bankrupt or defaults on his or her personal financial commitments.

Estate Planning

A trust provides a unique structure for passing on the family estate from one generation to another without incurring any stamp duty or other expenses. The trust deed that governs a trust clearly lays down what will happen to each beneficiary’s share on their death, ensuring no messy battles for the property within the family.

How does a trust work?

A trust is a financial structure in which a third party or a trustee holds and manages the assets on behalf of the beneficiaries of the trust. There are many kinds of trust structures that could be used by property investors, but family trusts remain the most used.

While creating a family trust, the grantor transfers all his assets to the trust so that they are no longer owned by an individual but the trust itself. A trustee is appointed to manage the trust for the benefit of the family members or beneficiaries.

The trustee can use his or her discretion to distribute the trust’s income and assets to the beneficiaries to maximise tax benefits for the family members. The trust can borrow money and invest in property that will be held in the name of the trust on behalf of the beneficiaries.

How to set up a family trust?

Setting up a trust requires writing a deed, which outlines the terms of the trust, how it will be governed, and how assets are administered.

The beneficiaries must formally accept the trust deed and the appointment of the trustee. Typically, a meeting is set up to gather the approval of each beneficiary and to establish the memorandum of wishes.

The memorandum lays out how the beneficiaries wish the income and assets to be distributed. This, however, will ultimately be at the discretion of the trustee. Changes to the memorandum are allowed.

Once the trust deed has been signed, the settlor, who is generally not related to the beneficiaries, must place a sum of money in the trust. Settlors are usually lawyers, accountants, or financial advisers who have no ties in the trust. For this, a separate bank account will be needed to carry out the business of the trust. 

Each trust must apply for an Australian Business Number (ABN) on its establishment. After this step, the state government must stamp the trust deed and all other related documents. Take note that stamp duty differs from state to state.


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LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.19% p.a.
6.58% p.a.
Principal & Interest
Featured 90% LVR
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6.04% p.a.
7.60% p.a.
Principal & Interest
5.94% p.a.
6.58% p.a.
Principal & Interest
6.29% p.a.
6.42% p.a.
Principal & Interest
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

Should you invest in property using a trust? 

A family trust is a viable strategy for many investors but there are several things you need to consider.

While the trust can be used to share profits in a tax-friendly way, you must remember that a family trust does not allow you to share losses as well. When buying your investment property using a trust, it is most important to structure your loan carefully to get the maximum tax advantage.

Take note that when the trust makes a loss, the loss is confined within. For instance, when rental incomes are not sufficient to cover mortgage interests and other costs, you will still end up paying these costs, but you will not be getting any tax deduction.

If losses accumulate, they can be offset against future profits.

It is also worth considering that most lenders require all adult beneficiaries to act as guarantors when approving a trust loan. There are, however, lenders that are more flexible and lenient to issue trust loans at competitive rates without the need for guarantors.

To avoid any pitfalls and risks, it is best to get professional advice. Financial advisors will be able to review and suggest changes to the structure of your trust to ensure that you make the most out of the benefits and protections a family trust can give.


Photo by @nci on Unsplash.