Last Updated on 13/08/2025 by Damin Murdock
When launching a new business in Australia, one of the first and most important decisions you’ll face is choosing the right legal structure. While companies are commonly used, many founders ask whether a family trust might be a better alternative. The answer depends on a mix of legal, tax, and operational considerations. This article explores the pros and cons of using a family trust to structure your startup, based on key case law and legislation.
What Is a Family Trust?
A family trust is a type of discretionary trust set up to benefit members of a family group. Sometimes, a corporate trustee (usually a proprietary limited company) is appointed to manage the trust’s affairs.
Benefits of a Family Trust
Asset Protection
A family trust can offer protection from personal creditors because the business assets are legally owned by the trust, not by individual family members. This only occurs where your structure is set up as a “trading trust”, meaning the actual trust trades and enters into contracts with its customers. Although a “trading trust” can generally protect the business assets from your personal creditors as you personally do not hold the assets, it does not protect your assets against trade creditors as normally trade creditors of a trading trust can be indemnified against the assets of the trust.
Alternatively, a trust can instead be established to hold the shares on your behalf in your trading company. In this situation, instead of you holding shares in your company, the shares that are held by the trust, and therefore, if you had any personal creditors, those shares may be protected from your personal creditors as you do not own them, the trust does. It is this structure that provides protection over the shares that you would normally own personally, but it does not necessarily protect against the assets that are owned by the company.
If you also wanted to protect the assets of your company, then often times it would be your trust that purchases those assets or warehouse or machinery, or develops the intellectual property, and then those assets are licenced to your trading entity for use, subject to a licence agreement and a personal property securities registration over the company in favour of the trust.
Tax Efficiency
Income distributed from a trust can be allocated across beneficiaries, meaning there is an ability to split the profits of the trading entity across different beneficiaries. In this case, each beneficiary will pay their personal tax on the distributions they receive from the trust. For instance, if you have a non-working spouse, it may make sense to distribute to him or her, rather than yourself, as your spouse would be in a lower personal tax bracket than you.
Succession Planning and Long-Term Flexibility
Trusts support multigenerational planning. Assets can be retained and managed within the trust for the benefit of future generations without needing to transfer legal title. There are limitations and rules regarding property transactions.
Consolidated Investment Management
Companies that have a family trust holding its shares on behalf of its founder, for instance, can also be used to hold other assets and the trust can be used as vehicle to manage family investments, shareholdings, and other assets, offering streamlined control and administration.
Downsides and Limitations of a Family Trust
Administrative Complexity
Establishing and managing a family trust normally involves legal and accounting setup costs, ongoing compliance requirements, and more complexity than a straightforward company.
Limited Flexibility for Growth and Investment
Startup founders aiming to attract venture capital or equity investors may find that a “trading trust structure” is unhelpful as it is difficult for an investor to invest into the business, in circumstances where the business is being operated by a discretionary trust, which is not governed by the Corporations Act. However, if you intend to use the family trust to hold your shares in your trading company, then this will not typically sway and investor as it is fairly common to use a trust to hold shares.
Family Disputes and Control Issues
Control of the trust lies with the trustee, and discretionary income distribution can lead to tension among beneficiaries. Family dynamics can complicate trust administration when personal relationships deteriorate.
Complex Exit Strategies
Selling or restructuring a business held within a family trust may require significant legal work, and trust deeds are often inflexible and can limit opportunities for clean exits.
What to Consider Before Choosing a Family Trust
Seek Professional Advice
Before choosing this structure, we recommend speaking to a qualified lawyer and accountant. Your individual financial circumstances, business goals, and family situation should all be assessed.
Plan for the Future
Think about how the trust structure will serve your startup not only at launch, but during growth, succession, or sale. The structure should align with your strategic goals and estate plans, especially if you foresee the inclusion of new family members or business partners. If you want to change your structure at a later date, capital gains tax implications may arise, and it could result in a costly restructure in the future.
Weigh the Costs and Benefits
While family trusts offer notable tax and asset advantages, their compliance and setup costs may outweigh the benefits for some founders. If you anticipate seeking investors or selling your business in the future, a standard standalone company structure might be more appropriate.
Maintain Proper Records
Trusts require ongoing administration, including annual tax returns, financial statements, and minutes. If using a corporate trustee, corporate governance obligations under the Corporations Act also applies.
Final Thoughts
A family trust can be a powerful legal structure for an Australian startup, particularly one that is family-run or designed for long-term wealth management. But it is not a one-size-fits-all solution. It demands careful planning, a clear understanding of its limitations, and ongoing management.
Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.
DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.
Damin Murdock (J.D | LL.M | BACS - Finance) is a seasoned commercial lawyer with over 17 years of experience, recognised as a trusted legal advisor and courtroom advocate who has built a formidable reputation for delivering strategic legal solutions across corporate, commercial, construction, and technology law. He has held senior leadership positions, including director of a national Australian law firm, principal lawyer of MurdockCheng Legal Practice, and Chief Legal Officer of Lawpath, Australia's largest legal technology platform. Throughout his career, Damin has personally advised more than 2,000 startups and SMEs, earning over 300 five-star reviews from satisfied clients who value his clear communication, commercial pragmatism, and in-depth legal knowledge. As an established legal thought leader, he has hosted over 100 webinars and legal videos that have attracted tens of thousands of views, reinforcing his trusted authority in both legal and business communities."
