Trust Funds in Australia 2025: Essential Guide & Tax Changes

Trust funds have long been associated with generational wealth, estate planning, and savvy tax strategies. In 2025, with Australia’s evolving financial landscape and fresh updates to trust taxation, more families and business owners are considering trust structures to protect assets, manage distributions, and plan for the future. But how exactly do trust funds work in Australia, who should use them, and what do the latest policy changes mean for you?

Understanding Trust Funds: The Australian Context

At its core, a trust fund is a legal arrangement where a trustee holds assets on behalf of beneficiaries. The trustee has a fiduciary duty to manage those assets according to the terms of the trust deed. Trusts come in various forms, but the most common in Australia are:

• Discretionary trusts (family trusts): Trustees have flexibility in distributing income and capital among beneficiaries.
• Unit trusts: Beneficiaries hold units that represent their share of the trust assets, similar to shareholders.
• Testamentary trusts: Created by a will to take effect after the settlor’s death, often used for estate planning.

Trusts can hold property, shares, cash, or even operate a business. They’re used by families to manage inheritances, by business owners for asset protection, and by investors seeking tax efficiency.

2025 Policy Updates: What’s Changed for Trusts?

This year, the Australian Taxation Office (ATO) has increased its scrutiny of trust distributions and compliance. Notable 2025 updates include:

• Section 100A enforcement: The ATO is enforcing rules that target ‘reimbursement agreements’—where trust distributions are made on paper to lower-taxed beneficiaries but benefit someone else. Trustees must ensure distributions genuinely benefit the named recipients, or face penalties.
• Expanded reporting requirements: From July 2025, trustees must disclose more details about beneficiaries and trust income, increasing transparency for both family and business trusts.
• Tax rates and streaming: The general trust tax rules remain—trusts aren’t taxed directly unless income isn’t distributed, in which case the highest marginal rate applies. However, the ATO is focusing on income streaming (allocating specific income types to specific beneficiaries), ensuring it’s done per the trust deed and legal requirements.

For example, a Melbourne family using a discretionary trust to distribute investment income among adult children now needs to provide the ATO with more detailed records of who received what, and why. Professional advice and proper documentation have never been more important.

Who Should Consider a Trust Fund in 2025?

Trusts aren’t just for the ultra-wealthy or large businesses. Here’s who may benefit from setting up a trust this year:

• Families with young children: Testamentary trusts can protect assets for minors and allow for tax-effective distributions while children are under 18.
• Small business owners: Discretionary trusts can separate personal and business assets, offering protection if the business faces legal or financial trouble.
• Property investors: Trusts can help manage multiple properties, distribute rental income, and plan for succession.
• Individuals concerned about incapacity or family disputes: Trusts can be structured to provide for vulnerable family members or to avoid assets being tied up in probate.

However, trusts involve setup and ongoing costs, including legal fees and annual compliance. The benefits need to outweigh these, so a tailored approach is key.

Setting Up and Managing a Trust: What’s Involved?

Establishing a trust in Australia typically involves:

1. Drafting a trust deed with the help of a solicitor or accountant.
2. Appointing a trustee (can be an individual or company) and naming beneficiaries.
3. Applying for a Tax File Number (TFN) and, if required, an Australian Business Number (ABN) for the trust.
4. Opening a bank account in the trust’s name.

Ongoing management includes:

• Keeping accurate records of income, expenses, and distributions.
• Preparing annual trust tax returns and beneficiary statements.
• Staying up to date with ATO guidelines and legislative changes.

In 2025, with heightened ATO attention, regular reviews and professional advice are crucial to ensure compliance and maximise the trust’s benefits.

Real-World Example: A Family Trust in Action

Consider the Nguyen family in Brisbane. They set up a discretionary trust in 2022 to manage rental income from two investment properties. In 2025, they distribute income to their two adult children, both university students with little other income, achieving significant tax savings. However, they work closely with their accountant to ensure all distributions are properly documented, and that the trust deed allows for income streaming—staying ahead of the ATO’s new reporting rules.

Conclusion: Is a Trust Fund Right for You?

Trust funds remain a flexible and powerful tool for asset protection, tax planning, and succession in Australia. The 2025 regulatory landscape demands more diligence and transparency than ever. Whether you’re considering a trust for family, business, or investment reasons, the key is to weigh the benefits against the complexity and compliance requirements. Done right, a trust can be a cornerstone of your financial future.