Living Trusts Australia 2025: Everything You Need to Know

With the Australian government focusing on intergenerational wealth transfer and tax reform in 2025, living trusts are back in the spotlight. If you’re looking for a flexible, private, and potentially tax-effective way to manage your assets—both while you’re alive and after—you might be wondering: is a living trust the right move?

What Is a Living Trust and How Does It Work?

A living trust is a legal structure that allows you to transfer ownership of assets to a trustee, who manages them for the benefit of named beneficiaries. Unlike a testamentary trust, which is created by your will and only comes into effect after death, a living trust is established and operational while you’re alive.

• Control: You (the settlor) can also be the trustee, maintaining control over assets.

• Flexibility: Add or remove assets, change beneficiaries, or dissolve the trust as your circumstances evolve.

• Privacy: Assets in a living trust generally avoid probate, keeping your estate matters out of the public eye.

Real-world example: A Sydney couple with investment properties used a living trust to ensure a smooth transfer to their children, avoiding the delays and legal fees associated with probate.

2025 Policy and Tax Updates Impacting Living Trusts

The Albanese government’s 2025 reforms have introduced new compliance requirements for discretionary (family) trusts, including:

• Expanded reporting: Trusts must now lodge additional annual disclosures about beneficiary distributions and foreign tax residency.

• Taxation review: The ATO has signalled closer scrutiny of trust distributions to adult children and low-income beneficiaries, targeting schemes that seek to minimise tax.

• Capital gains changes: From 1 July 2025, capital gains distributed through trusts may face new withholding rules for non-residents.

These changes make professional advice essential, especially for families using trusts to hold investment property or shares. For example, a Melbourne family with a living trust holding a share portfolio now needs to report more detail on distributions to their adult children, with potential tax consequences if they’re studying or on low incomes.

Who Should Consider a Living Trust in 2025?

Living trusts aren’t just for the ultra-wealthy—they can make sense for:

• Business owners: Separating business and personal assets for risk management.

• Blended families: Ensuring specific children or stepchildren receive intended assets.

• Families with vulnerable members: Managing funds for children with disabilities or spendthrift tendencies.

• Property investors: Streamlining succession and protecting against challenges to your will.

But there are downsides: trusts require annual compliance, can trigger stamp duty or capital gains when assets are transferred in, and ongoing costs can outweigh benefits for small estates. For many Australians, a simple will plus superannuation nominations may be sufficient.

Living Trusts vs. Other Estate Planning Tools

How does a living trust stack up against other options?

• Will: Simpler and cheaper, but goes through probate and offers less flexibility for complex family situations.

• Testamentary trust: Tax-effective for minor children, but only starts after your death.

• Superannuation death benefit nominations: Cost-free and tax-efficient for passing on super, but limited to super assets.

Ultimately, the right mix depends on your wealth, family structure, and goals.

Conclusion

Living trusts can be a powerful estate planning tool for Australians wanting privacy, flexibility, and control—especially as 2025 brings new tax and compliance challenges. But they’re not a universal solution. The smartest move? Review your estate plan now and weigh whether a living trust fits your family’s needs in this new regulatory era.