As Australian families and business owners seek more control over their wealth, inter-vivos trusts have emerged as a powerful tool for asset protection, tax efficiency, and seamless succession planning. But what exactly is an inter-vivos trust, and why is it gaining traction in 2025?
What is an Inter-Vivos Trust?
An inter-vivos trust—sometimes called a living trust—is a legal arrangement created during a person’s lifetime (as opposed to a testamentary trust, which is set up through a will). The person setting up the trust (the settlor) transfers assets to a trustee, who manages them for the benefit of designated beneficiaries. In Australia, inter-vivos trusts are typically discretionary family trusts, but unit trusts are also common in business and investment structures.
Key characteristics of inter-vivos trusts:
- Established while the settlor is alive
- Flexible in distributing income and capital
- Can include a wide range of assets—property, shares, cash, businesses
Why Inter-Vivos Trusts Matter in 2025
Australia’s 2025 financial landscape has sharpened focus on asset protection and tax compliance. New regulations and ongoing ATO scrutiny have made inter-vivos trusts even more relevant for individuals and families who want to:
- Protect assets from creditors or family law claims
- Minimise tax through flexible income distribution
- Smoothly transfer wealth between generations
- Plan for business succession or manage family investments
2025 regulatory updates: The ATO has tightened rules around trust distributions to adult children and extended the reach of Section 100A (reimbursement agreements), so trustees must be diligent with documentation and beneficiary entitlements. There’s also more emphasis on transparency and reporting, including the new Trust Income Reporting requirements coming into effect on 1 July 2025.
Real-World Example: A Family Trust in Action
Consider the Nguyen family in Melbourne. In 2022, they established an inter-vivos discretionary trust to hold investment properties and shares. By 2025, their children are now adults and actively involved in the family business. Each year, the trustee distributes income to family members in lower tax brackets, reducing the overall tax bill. When one child faces a lawsuit, assets held in the trust are protected from creditors, providing peace of mind.
In 2025, the Nguyens also need to comply with the ATO’s latest rules: detailed trust resolutions must be signed before 30 June each year, and all beneficiary entitlements must be documented and reported. Their accountant uses specialist trust software to ensure full compliance and take advantage of the trust’s flexibility.
Setting Up and Managing an Inter-Vivos Trust: What to Know
Establishing an inter-vivos trust in Australia requires careful planning and ongoing management. Here’s what’s involved:
- Drafting a trust deed: This legal document sets out the trust’s rules, beneficiaries, and powers of the trustee. It must be tailored to your family or business needs and comply with current laws.
- Choosing the right trustee: Trustees can be individuals or a corporate trustee (often preferred for asset protection and succession).
- Transferring assets: Assets must be legally transferred to the trustee. Stamp duty and capital gains tax may apply, so professional advice is crucial.
- Ongoing compliance: Trustees must keep accurate records, make resolutions on distributions, and report to the ATO under the new 2025 trust reporting standards.
- Reviewing regularly: Laws change, as do family circumstances. Regular reviews ensure the trust remains effective and compliant.
Are Inter-Vivos Trusts Right for You?
While inter-vivos trusts offer substantial benefits, they’re not for everyone. The costs of set-up and administration, complexity, and increased ATO scrutiny mean they’re best suited to those with significant assets or complex family/business needs. For Australians in 2025, the right advice and a proactive approach are essential to unlock the full potential of these living trusts.
