Steps to set up a discretionary trust

What is a discretionary trust?

A trust is a legal relationship where one or more trustees (either a person or company) holds assets for the benefit of one or more other parties (the ‘beneficiaries’). A discretionary trust (also known as a family trust) is a trust in which the trustee is given the power/discretion to decide which of the beneficiaries are to benefit from the trust.

A discretionary trust is an important vehicle to help protect family assets from creditors and enable income and capital to be spread among members of a family in order to reduce the family group’s tax bill. We recommend you contact LegalVision if you need a lawyer who can assist you should you require advice on these matters.

Steps in setting up a Discretionary/Family Trust

1. Select trustee(s)

The trustee is the person / legal entity responsible for administering the trust in accordance with the terms of the trust deed. The trustee may be one or more individuals or a private (i.e. proprietary limited) company specifically setup to act as trustee.

Despite the initial cost of setting up a company, it is generally recommended that a company act as trustee of a discretionary trust in order to minimise the risk of personal liability (which is greater for individual trustees than for directors of a corporate trustee) and avoid unnecessary administration (which requires changes to be made in respect of the registered owner of each trust asset where there are changes in individual trustees).

If you want to use a corporate trustee you register a new company first and then create the trust deed. This company is a standard PTY LTD company and you do not typically register an ABN for this new company.

2. Draft trust deed

eCompanies can prepare a customised discretionary trust deed for $150. Our questionnaire will guide you through all the required information, for more information of what is required please see our explanation of discretionary trust roles. Email delivery of your deed is in pdf format, however you may also download the deed in docx, doc or rtf format from our client area at any time if you need the ability to edit the deed before it is signed.

If you are unsure of any details now is the time to get your setup reviewed by your accountant or lawyer before proceeding.

3. Settle trust

The trust deed must be signed by the settlor, who must give the initial settlement sum (usually $10) to the trustee. The settlement sum can be paid by cash or cheque. The settlor is usually someone unrelated to the beneficiaries of the trust, such as an accountant, lawyer or close family friend. For tax reasons, the settlor should not be a beneficiary of the trust. The settlor usually has no further involvement with the trust after the initial settlement.

4. Trustee(s) sign trust deed

The trustee(s) must hold a meeting accepting its/their appointment as trustee(s) of the trust and agreeing to be bound by the terms of the trust deed. If you are using a corporate trustee then appropriate minutes are part of the eCompanies document pack.

5. Stamping

Stamp duty may be payable on the trust deed. Stamp duty is a state based tax and so applies differently in different states or territories of Australia. You should determine whether duty is payable by contacting the relevant revenue authority or seeking assistance from LegalVision or your accountant. Even if no duty is payable the trust deed may need to be lodged with the relevant revenue authority for marking that no duty is payable.

Stamping can be arranged either directly through the relevant revenue authority in your state or territory or by a lawyer, accountant or other service provider that offers stamping facilities. In New South Wales, stamp duty of $500 is payable in respect of each new trust within three months of the trust being established in accordance with the provisions of the Duties Act 1997 (NSW), which is administered by the NSW Office of State Revenue. If duty is not paid within three months then interest is payable until such time as the duty is paid.

Make sure you make several copies of your signed and stamped deed and store them in a safe place. You do not want to deal with a lost trust deed.

6. Apply for ABN and TFN

Once the trust has been established an application for an Australian business number (ABN) and tax file number (TFN) should be made for the trust. An application for both an ABN and TFN (GST and PAYG are options) can be made online through the Australian Business Register or with the assistance of an accountant. This can take up to 28 days.

7. Open bank account

Once the trust has been established and the trust deed stamped (if stamping is necessary) then a bank account should be opened for the trust in the name of the trustee as trustee for the trust. The bank may require the trust ABN and a copy of the trust deed (possibly certified by a lawyer or JP) before it will open the account.

Once a bank account has been opened the first deposit in the account should be the settlement sum (i.e. $10, see 2 above). The settlement sum should be deposited before any other deposits are made or any other transactions are entered into by the trust.

8. Trust is operational

The trust is now operational and is able to accept contributions (i.e. further settlement sums) and, subject to the terms of the trust deed, borrow money and make investments.

How do I apply?

Simply fill in our online form and pay, our fully automated process delivers your customised Trust Deed. Anytime of the day, 24×7.

Learn more

You can find more information by visiting – what is a discretionary trust and setup a trust guide,  or explanation of roles in a discretionary trust.

Discretionary Trust Information

Need more info? Check out our what is a discretionary trust and our explanation of roles in a discretionary trust pages.