For Australians thinking ahead about their legacy, a gift in trust is emerging as a powerful strategy in 2025. Whether you want to protect your family’s wealth, manage tax obligations, or ensure your assets are distributed according to your wishes, understanding how gifts in trust work is vital. With recent legislative tweaks and a shifting tax landscape, it’s never been more important to get savvy about this financial tool.
What Is a Gift in Trust?
At its core, a gift in trust is when you transfer assets (such as cash, shares, or property) to a trustee, who then manages those assets for the benefit of a chosen beneficiary. Unlike an outright gift, the assets are held and administered under the terms of the trust deed. This means you can set specific conditions on when and how the beneficiary receives the assets — a compelling option for parents, grandparents, and anyone looking to provide for minors or vulnerable family members.
- Control: Set rules for distribution (e.g., age, milestones, education).
- Protection: Shield assets from creditors, divorce, or poor financial decisions.
- Tax planning: Potential to distribute income to beneficiaries in lower tax brackets.
2025 Australian Tax and Policy Updates
The rules around trusts and gifting are always evolving, and 2025 has seen some notable changes. The ATO continues its focus on trust distributions, particularly with the application of Section 100A (which targets trust arrangements deemed tax avoidance). Here’s what’s new and relevant this year:
- Section 100A enforcement: The ATO is scrutinising trust distributions to adult children and non-resident beneficiaries, so it’s crucial to document the purpose of the trust and ensure distributions align with genuine family arrangements.
- Minor beneficiaries: Income distributed to children under 18 is still subject to penalty tax rates, but there are exemptions for certain testamentary trusts (those created by a will).
- CGT implications: Gifting assets to a trust can trigger capital gains tax, as the transfer is a CGT event. However, some small business and main residence exemptions may apply.
- Reporting requirements: In 2025, trustees must provide increased transparency in annual trust tax returns, including details on beneficiaries and distributions.
Always ensure the trust deed is up-to-date and that you seek guidance on compliance with the latest ATO guidelines.
Real-World Examples: How Australians Are Using Gifts in Trust
Let’s look at a few scenarios where a gift in trust makes a real difference:
- Education funding: Sarah and Mark set up a discretionary trust for their two young children. By gifting shares into the trust, they create an investment portfolio that can fund private schooling and university fees. The trustee (Mark’s sister) manages the assets and ensures funds are only released for approved educational expenses.
- Asset protection for vulnerable family: John wants to support his adult son, who has a disability. He establishes a protective trust and gifts his investment property into it. The trust deed ensures the property is maintained and rental income is used solely for his son’s care, with a professional trustee overseeing the arrangement.
- Estate planning: After selling their small business, Priya and Raj gift a portion of the proceeds into a testamentary trust. Their adult children receive income distributions taxed at adult rates, reducing the overall tax burden and protecting the inheritance from relationship breakdowns or creditor claims.
Key Considerations Before Gifting in Trust
While the benefits are significant, there are crucial factors to weigh before proceeding:
- Irrevocability: Most gifts in trust are final — you can’t simply change your mind and reclaim the assets.
- Tax consequences: Be aware of potential CGT, stamp duty, and ongoing income tax issues.
- Cost and complexity: Setting up and maintaining a trust involves legal, accounting, and administrative fees. Clarity around the trust deed and choice of trustee is paramount.
- Centrelink impact: Gifting assets may affect your eligibility for government benefits, as Centrelink applies gifting rules that can impact your Age Pension or other entitlements.
Given the complexity, a tailored approach is essential. The right trust structure depends on your family’s needs, asset types, and long-term goals.
Conclusion: Planning for the Future with Confidence
In 2025, a gift in trust remains one of the smartest, most flexible ways to secure your legacy and provide for loved ones. With the right structure and expert advice, you can maximise tax benefits, protect your assets, and gain peace of mind knowing your wishes will be respected. If you’re considering a gift in trust, now is the time to review your options and take proactive steps to safeguard your family’s future.
