Welcome to my weekly Insights blog. Once a week, we cover a wide range of topics such as wealth creation, super, estate planning and tax.
When you own an asset personally, it’s exposed to everything that happens to you: a business failure, a professional negligence claim, a car accident, a bankruptcy or a relationship breakdown.
Ask a wealthy family what they own and you may get a surprising answer: very little, at least in their own names. The investment properties sit in a family trust. The business operates through a company. The share portfolio is held by a self-managed super fund.
This isn’t secrecy or tax trickery. It’s a deliberate strategy that separates control of wealth from ownership of it. Done well, it protects assets from lawsuits and creditors, gives the family flexibility on tax, and makes passing wealth to the next generation far simpler.
The good news? These same structures are available to everyday investors and small business owners on the Northern Beaches. You don’t need to be a billionaire to think like one.
Key takeaways
- Wealthy Australian families typically hold investments in a family trust, run businesses through a company and hold retirement savings in an SMSF, rather than owning assets in their own names.
- These structures let you keep control of assets without legally owning them, which can protect them from personal creditors and claims.
- Family trusts also offer flexibility to distribute income among family members and make succession simpler, because a trust continues after you die.
- Structures have costs and trade-offs, including NSW land tax, trapped losses in trusts, and CGT and stamp duty if existing assets are moved. The family home is usually best held personally.
- Asset protection only works if it is set up before trouble arrives.
Ownership vs control: the core idea
When an asset is held by a properly structured trust or company, you can still control it as director or trustee. You decide when to buy, sell, borrow and distribute income. But you don’t legally own it, so in many cases your personal creditors can’t reach it.
Think of it as steering the boat without having your name on the hull.
The four structures wealthy families use
| Structure | Typically holds | Main advantage |
|---|---|---|
| Family (discretionary) trust | Investment property, shares, business interests | Flexibility to distribute income among family members each year, plus asset protection |
| Company | An operating business, or acting as trustee or a “bucket” beneficiary | Limited liability and a capped tax rate on retained profits |
| Self-managed super fund | Shares, cash, commercial property (including your business premises) | Concessional tax rates and strong protection from creditors |
| Testamentary trust | Assets left under your Will | Protects heirs and allows children under 18 to be taxed at adult rates |
Most families use a combination. A common pattern is an operating company for the business, a family trust that owns the shares in that company, a corporate trustee in place of individual trustees, and an SMSF for long-term retirement savings.
Asset protection: a tale of two builders
Consider two builders in Brookvale, each with a successful business and two investment properties.
Builder A runs the business as a sole trader and owns both properties in his own name. A defective work claim on a job exceeds his insurance cover. Because everything is in his name, the business assets, the properties and even the family savings are all exposed.
Builder B runs her business through a company. Her investment properties are held by a family trust with a separate corporate trustee. When she faces a similar claim, it is generally limited to the company’s assets. The family trust’s properties sit outside the claim.
Same trade, same bad luck, very different outcome. Structures don’t make you bulletproof, and directors can still be personally liable in some situations, such as unpaid super, PAYG withholding and GST. But they put meaningful walls between your risks and your wealth.
(Names and details are illustrative only.)
The tax and succession benefits
Asset protection is only half the story. The right structure can also help with tax and with passing wealth on.
- Income splitting. A family trust can distribute income to adult family members on lower tax rates, such as a spouse not working or adult children at university.
- Capital gains. Trusts can generally pass on the 50% CGT discount to individual beneficiaries when an asset held for over 12 months is sold.
- Retained profits. A company can retain business profits at the company tax rate rather than having them taxed at the owner’s marginal rate, subject to the Division 7A rules if the money is later accessed.
- Smoother succession. A trust doesn’t die. When you pass away, control passes to the next appointor or trustee under the trust deed. There is no need to transfer properties, pay stamp duty or wait for probate on those assets.
That last point is often the biggest. Assets in a trust don’t form part of your estate, so they are generally harder to challenge. Be aware that NSW’s “notional estate” rules can sometimes reach non-estate assets in a family provision claim, so trust planning should be done alongside your estate lawyer.
The catch: structures aren’t free or automatic
Structures are powerful, but they’re not right for everyone. Before setting one up, weigh the trade-offs.
- Set-up and running costs. Each entity needs its own deed or constitution, tax return, financial statements and, for companies, an ASIC annual review fee.
- NSW land tax. A discretionary trust holding land in NSW generally doesn’t get the land tax-free threshold available to individuals. Trust deeds also need the right clause excluding foreign beneficiaries to avoid surcharge land tax.
- Negative gearing. Losses are trapped in a trust and can’t be distributed to reduce your personal tax. A heavily geared property may suit personal ownership better in the early years.
- Moving existing assets is costly. Transferring a property you already own into a trust can trigger CGT and stamp duty. Structure first, buy second.
- ATO scrutiny. Trust distributions must reflect real arrangements. The ATO is actively reviewing distributions under section 100A, where income is distributed to one person but enjoyed by another.
- No main residence exemption. Your family home is usually best held personally to keep the CGT main residence exemption.
Common mistakes we see
- Individual trustees instead of a corporate trustee. If the trustee is you personally, the trust’s liabilities can still land on you. A corporate trustee adds a further layer of protection and makes succession cleaner.
- Forgetting the appointor. The appointor controls the trust because they can replace the trustee. If your Will and trust deed don’t say who takes over, control can end up somewhere you never intended.
- Mixing personal and entity money. Paying personal bills from the company account can create Division 7A loans and undermine the structure’s protection.
- Setting it and forgetting it. Deeds drafted 20 years ago may not reflect current law or your family’s circumstances. Review them regularly.
- Timing. Asset protection must be in place before trouble arrives. Transfers made when a claim is looming can be clawed back.
Frequently asked questions
Can creditors reach assets held in a family trust?
Generally, a beneficiary’s personal creditors can’t reach assets held in a properly established discretionary trust, because the beneficiary doesn’t own them. The protection weakens if you are the individual trustee, if the trust owes you money through a loan account or unpaid distributions, or if assets were transferred in when a claim was already likely.
Should I put my family home in a trust?
Usually not. A home owned by a trust loses the CGT main residence exemption and, in NSW, the trust generally doesn’t get the land tax-free threshold. Most families hold the home personally, often in the name of the spouse with the lower risk profile.
Do I need a corporate trustee for my family trust?
It isn’t legally required, but it’s strongly recommended. A company acting as trustee keeps the trust’s liabilities away from you personally and makes it easier to change control later, because you change directors instead of re-titling every asset.
Can I move an investment property I already own into a trust?
You can, but the transfer is usually treated as a sale at market value. That can trigger capital gains tax and NSW transfer duty. It’s generally far cheaper to set up the structure first and buy the next asset in it.
Is your wealth in the right hands?
The wealthiest families don’t get there by accident. They plan their structures early, review them often, and make sure control passes smoothly to the next generation.
Whether you’re buying your first investment property, growing a business or thinking about succession, the right structure today can save your family a great deal of cost and stress tomorrow.
At TaxAssist Accountants Dee Why, we help Northern Beaches investors and business owners review their existing structures and plan new ones. Call us on (02) 9045 1511 or email [email protected] to book a structure review.
This article contains general information only and does not take into account your personal circumstances. It is not legal or financial product advice. Please speak with a qualified adviser before making decisions about your structure.
