Protecting generational wealth: Structuring your family business for long-term success

When it comes to building a business that can withstand the test of time and be passed down from one generation to another, careful consideration must be given to its structure.

One effective solution for achieving long-term success, along with tax benefits and asset protection, is the formation of a family trust. However, navigating the legal considerations involved in structuring a family business can be complex. In this article, we will outline the key factors to consider when establishing a family trust for your business, providing you with the necessary information to make informed decisions.

Creating a Trust

To structure your business as a family trust, several criteria must be met:

  1. Trustees or Directors of a Corporate Trustee: The trust must have one or more individuals or a corporate entity designated as trustees. These individuals or entities will have the legal responsibility of managing the trust and its assets.
  2. Trust Deed: A trust deed is a legal document that outlines the rules and obligations governing the trust. It covers important aspects such as the relationship between the trustee and the beneficiaries, the trustee’s duties and investment powers, the trust fund’s objectives, and more.
  3. Initial Assets: A settlement sum, usually a nominal amount around $10, is required to create a legal effect that the trust can be used. This starting amount establishes the trust’s existence.
  4. Identifiable Beneficiaries: The trust deed should clearly identify the beneficiaries or members of the trust. These individuals or entities will benefit from the trust’s income or capital, as outlined in the trust deed or by the trustee’s discretion.

It is crucial to ensure that the trust deed is prepared by a competent party, signed and dated by all trustees, executed according to relevant state or territory laws, and regularly reviewed and updated as needed.

The Key Players in Your Trust

A family trust involves several key players, each with distinct roles and responsibilities. Understanding their functions is essential for effective management and decision-making within the trust.

The Trustees

The trustee, or trustees, play a vital role in managing the trust. They are the legal owners of the assets held within the trust, holding them on behalf of the beneficiaries. The trustee can be an individual, a group, or a company. When a company acts as the trustee, the company directors control the trust’s activities, providing limited liability and perpetual succession advantages.

Various trustee classifications exist, including:

  • Public Trustee: Administers estates, wills, and similar activities in a public capacity.
  • Trustee Companies: Act as administrators and executors of an estate, managing funds and investments on behalf of the beneficiaries.
  • Bare Trustees: Hold trust property on behalf of another adult individual without any vested interest in the fund itself.
  • Custodian Trustees: Hold trust assets to be managed by managing trustees, following the settlor’s terms.
  • Advisory Trustees: Appointed by a Public Trustee, they serve in an advisory role without management or administration powers.

The Beneficiaries

Beneficiaries are the individuals or entities for whose benefit the trustee holds the trust assets. Beneficiaries can be immediate family members, close relatives, related companies, charities, or even trustees of other trusts. They receive entitlement to the trust’s income or capital, as outlined in the trust deed or at the discretion of the trustee.

It is essential to note that beneficiaries are typically taxed on the net income of the trust, based on their apportioned share of the trust’s income, regardless of whether they actually receive the income or not.

The Settlor

The settlor is an independent individual responsible for setting up the trust and naming the beneficiaries, trustee, and, if applicable, the appointor. The settlor cannot be the trustee, a beneficiary, or related to them for tax purposes. Usually, a lawyer or accountant, the settlor assists the client in establishing the trust without having any rights to income or capital from the trust assets.

The settlor’s role includes paying the initial settlement sum for the trust. If property is transferred, stamp duty and capital gains tax implications should be considered. Once the trust deed is executed, the settlor’s role is complete, and the trustee assumes responsibility for the trust.

The Appointor

The appointor has the authority to appoint, replace, or remove the trustee. This role becomes significant if the existing trustee passes away, becomes insolvent, or fails to follow the appointor’s directions. The initial appointor is named in the trust deed and may resign or nominate another individual or company as a successor. In case of the appointor’s death without naming a successor, their legal representative can become the interim appointor until a new appointor is named.

Both beneficiaries and the settlor can be named as appointors, and it is possible to have multiple appointors to ensure continuity in case of any issues or incapacitation. This arrangement is particularly beneficial for discretionary trusts, where both parents are typically nominated as appointors.

Legal Advantages of Family Trusts

Structuring your family business as a family trust offers several benefits that contribute to the long-term success and protection of generational wealth. Let’s explore two key advantages of this structure: improved asset protection and tax minimisation strategies.

1. Improved asset protection

When you establish a family trust, you are no longer considered the legal owner of the assets held by the trust. Instead, the trustee assumes this responsibility. This arrangement provides a layer of protection against creditors in case of financial trouble. Additionally, holding shares through a trust can offer additional protection, making family trusts an attractive option for shielding assets from business failure, bankruptcy, marriage breakdowns, or disputes over family wills.

Appointing a corporate trustee further enhances asset protection since the trustee company has nominal capital available, reducing the risks associated with investments within the trust when compared to an individual trustee.

2. Tax minimisation strategies

Family trusts offer significant tax planning advantages by allowing the distribution of trust income among beneficiaries. This distribution enables the spreading of income across individuals with lower marginal tax rates, effectively reducing the overall tax burden on the trust.

The trustee has discretion in determining how the trust’s net income and capital gains are distributed among beneficiaries. This underscores the importance of appointing a trustee whom you trust to make fair and informed decisions.

For instance, if you have three adult children, you can distribute taxable income through the trust, thereby avoiding personal marginal tax rates and taking advantage of their lower tax rates. However, caution must be exercised when distributing income or capital gains to children under 18 years old, as these distributions may be subject to higher tax rates.

While family trusts offer numerous advantages, it is important to be aware of their potential drawbacks. Some of the legal disadvantages include the costs of establishing and maintaining a trust, undistributed income being taxed at the top marginal rate, and potential complication from family disputes, etc.

It is crucial to carefully evaluate the pros and cons of a family trust and seek professional advice to determine if it is the right structure for your family business.


Structuring your family business as a family trust can provide long-term stability, tax benefits, and asset protection for future generations. By understanding the key players and their roles, as well as the legal advantages and disadvantages of family trusts, you can make informed decisions that align with your business goals and protect your generational wealth.

However, establishing and managing a family trust requires careful planning, regular review, and professional guidance. Consult with our KMT adviser to ensure the successful implementation and ongoing administration of your family trust!

Read next: Tips for a smooth succession in family business

About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your business valuation.

This is general advice only and does not take into account your financial circumstances, needs and objectives. The article should not be relied upon as specific information or advice without obtaining appropriate professional advice after a detailed examination of your particular situation from a qualified KMT adviser.