We’re hearing this question from many of our clients since the Federal Budget on 12 May 2026 announced changes to how family trusts (also called discretionary trusts) are taxed. Small to medium-sized businesses, family business owners and individuals who have taken steps to limit their personal liability are now questioning the value of those existing structures.
The honest answer is that it depends on why you set the trust up in the first place. Every scenario is different, but most trusts we see exist for two reasons: asset protection and tax planning. That combination is why there are more than 1 million of them across Australia.
The legislative changes announced in the Federal Budget have now passed both houses of Parliament, and they target the taxation of family trusts. If asset protection remains at the forefront of your personal or business strategy, family trusts are still a robust and effective structure to scaffold protection around what you have worked hard to build.
Here are a few reasons why:
Foundational principles remain intact – a trust keeps your personal assets separate from your trust assets
The tax rules have shifted, but the underlying legal principle around beneficial and legal ownership has not. A trust is not a “legal entity” in the way a company is; it does not have its own separate identity. It is a legal relationship between at least two parties: the trustee and the beneficiaries. The trustee holds legal ownership of property and is obliged to hold and use that property for the beneficiaries’ benefit.
The concept is not intuitive (it traces back to English law in the Middle Ages) and can be challenging to get your head around.
For present-day purposes, it boils down to this: property held on trust is treated as separate from property you own personally. The same person can own one asset personally and another as trustee, and the law recognises the distinction.
This is relevant if a claim is ever made against you personally because trust assets are afforded a level of protection in the event of a claim and are therefore arguably out of the claimant’s reach. If you run a business or carry personal exposure (for example as a company director, or through a high-risk field of work) family trusts continue to offer meaningful asset protection benefits.
We can advise you on your current asset protection structure or help you implement one to protect what matters most. Call us on 1300 654 590 or email us.
Succession planning advantage: Trusts let you pass control across generations in a planned, deliberate way.
Trusts remain one of the most efficient ways to transition control of assets from one generation to the next.
Building on the principles above, assets held on a trust remain subject to the terms of the trust, even if there is a change to the trust controller (trustee). This means that when a succession event happens (for example, if a trustee dies, or a business is restructured), the underlying trust assets continue to be held on the same trust terms even if the trustee changes. What changes is who holds legal title as trustee. Documented and managed properly, that transition should not trigger tax or duty.
If a trust deed allows, it is also possible to plan for transition of trust control conditional on a certain event occurring. For example, an individual trustee can plan for a change of trustee in the event that they are incapacitated and execute a document to this effect. This reduces any delay associated with unplanned change of control. The opportunity to be able to plan in this way means that a change of trust control is less disruptive and stressful – a valuable advantage, especially if the trust is key to active business operations.
Compare this scenario to a personally owned asset. On death, the asset has to move through the owner’s estate. On incapacity, the asset will be subject to control of the individual’s Enduring Power of Attorney, if they have one in place. If an asset transfer occurs during the owner’s lifetime, ownership has to move from the individual to the new owner. All of these scenarios tend to involve delay, a tax bill, or both. For family businesses and family groups planning for the next generation to take the helm, trusts remain a practical way to plan for and hand control over smoothly.
Need assistance with passing your legacy down to the next generation? We can help. Call us on 1300 654 590 or email us.
Leverage flexibility:You can tailor the trust deed to fit your family’s protection needs.
Personally owned assets leave you very little room to design how an asset is controlled. Every decision made about the asset is traceable to the person on title. A discretionary trust is different: the trust deed sets the rules for how trust assets are controlled, and it lets you build in layers of oversight.
Think of it as a set of checks and balances. Day-to-day, the trustee usually holds the reins and is in control of everyday decisions, such as payments of trust expenses, management of trust assets and organising tax returns and preparation of financials annually. Certain higher-stakes decisions can be conditional on the sign-off of a party appointed as “guardian” or “protector” of the trust. A capital distribution, a change to how income is allocated between primary beneficiaries or a change of appointor would be typical examples.
For families concerned about a relationship breakdown or a family dispute affecting family assets, that layered structure is well worth considering. This is because these layers distance the individuals benefiting from the trust from overall control of the trust by making other individuals responsible for certain decisions. This reduces the influence over the trust that beneficiaries have.
The same idea extends to succession. Delayed control provisions, restrictions on specific decisions, and triggering a change of trust control on a nominated event are all planning levers available inside a trust deed with the right advice. There is very little equivalent when it comes to personally held assets.
Family dynamics can be complex, this needs to be reflected in your succession structure to ensure your family legacy is managed appropriately. We can help you put a succession plan in place which takes complicated family relationships into account. Call us on 1300 654 590 or email us.
What about testamentary trusts?
Using testamentary trusts in light of the Federal Budget Announcement is a topic that deserves its own post (watch this space!), but the important point for now is that they have been expressly carved out of the legislative changes to trust taxation. That means they remain a strong estate planning tool.
Every family’s structure is different, and anyone reconsidering their use of trusts should get proper advice before making changes. What the assets are, and what the family plans to do with them, both matter. Tax on trust assets is still an important part of the picture, and advice on that side should also be sought.
If you need advice on whether trusts still fit your structure after the Federal Budget announcement, ADLV Law can help. Call us on 1300 654 590 or email us.
The information contained in this post is current at the date of editing – 07 July 2026.
