Wasting trusts are an advanced estate planning tool that’s making headlines in 2025, as more Australians look for innovative ways to manage wealth, reduce tax, and protect assets for the next generation. But what exactly is a wasting trust, and why is it suddenly so relevant?
What Is a Wasting Trust?
A wasting trust, sometimes called a “depleting trust”, is designed to gradually distribute or ‘waste’ its assets over a predetermined period, rather than preserving capital indefinitely. These trusts are often used to hold assets that have a finite useful life—such as intellectual property, mining rights, or leasehold interests—or to create a structured payout for beneficiaries over time.
- Finite asset life: Trusts set up for assets that will eventually expire or run out.
- Structured distributions: Regular payments to beneficiaries until the trust is exhausted.
- Tax planning: Allows for timing of income and capital gains to align with beneficiaries’ tax positions.
Unlike perpetual family trusts, wasting trusts are purpose-built for scenarios where the trust’s assets are expected to be depleted within a certain timeframe, often aligning with the life of an asset or a beneficiary’s specific need.
Why Wasting Trusts Are Trending in 2025
Several recent developments have pushed wasting trusts into the spotlight for Australian families, business owners, and professionals:
- 2025 tax reforms: The Australian Government’s 2025 Federal Budget has maintained scrutiny on discretionary trusts, but wasting trusts remain a legitimate avenue for managing finite assets and structured payouts.
- Rising intergenerational wealth transfers: As Baby Boomers pass on assets, families seek structures that align distributions with the needs or ages of beneficiaries.
- Complex business succession: For businesses with finite contracts, intellectual property, or royalties, wasting trusts help control the wind-down and distribution process.
For example, a family selling the rights to a book or patent may use a wasting trust to distribute royalties over a set period, ensuring each beneficiary receives their share in a tax-efficient manner.
Benefits and Pitfalls of Wasting Trusts
Wasting trusts offer unique advantages, but they’re not for everyone. Here’s what to consider:
Key Benefits
- Tax Efficiency: Income and capital gains can be distributed to lower-taxed beneficiaries, smoothing tax outcomes and possibly avoiding higher marginal rates.
- Asset Protection: Segregates finite or wasting assets, shielding them from creditors or family disputes.
- Customisable Distributions: Trustees can tailor payments to suit education costs, health needs, or business wind-downs.
Potential Pitfalls
- Complex Compliance: Australian Taxation Office (ATO) rules around trust distributions are tightening. In 2025, the ATO’s latest guidance on trust streaming and anti-avoidance provisions means trustees must tread carefully.
- Finite Lifespan: Once the asset is depleted, the trust serves no further purpose and must be wound up, which may incur final tax consequences.
- Limited Flexibility: Not suitable for assets intended for long-term growth or indefinite holding.
Real-World Example: Wasting Trust for a Mining Lease
Consider an Australian family that inherits a mining lease with 12 years remaining. Instead of distributing all profits up front, they establish a wasting trust:
- The trust receives income from the lease each year.
- Distributions are made annually to beneficiaries based on their tax status, maximising after-tax returns.
- At the end of the lease, the trust winds up, and any residual assets are distributed.
This approach not only smooths income and reduces the risk of large, one-off tax bills, but also provides a clear legal structure for managing a finite asset.
Setting Up a Wasting Trust: What to Watch For in 2025
- Legal Documentation: Trust deeds must be drafted carefully to reflect the wasting asset and distribution plan.
- ATO Compliance: Trustees should stay up to date with the ATO’s 2025 enforcement priorities around trust distributions and anti-avoidance.
- Professional Advice: Tax law and trust structuring are highly complex—getting it wrong can trigger costly tax or legal outcomes.
With the right setup, a wasting trust can be a powerful tool for wealth transfer, tax planning, and asset protection—especially as the Australian financial landscape evolves.
