Trusts 101: A Simple Guide to Protecting What Matters

Unpacking The Biggest Misconceptions About Trusts

Trusts are largely misunderstood, and these misunderstandings can lead to missed opportunities.

Because they are often used for investments and businesses, many people assume they’re overly complex structures only applicable to wealthy business owners and families.

But trusts aren’t just for the rich. They’re for the prepared.

In fact, trusts can be a great tool for people who want to protect their assets for the benefit of others, such as their children.

Back to Basics: What Is a Trust?

A trust is like a secure structure that holds assets for someone else’s benefit.

Legally, a trust isn’t a separate entity like a company, it’s a relationship between three parties: The Trustee, The Beneficiaries and The Asset.

Key Roles

Trustee: The trustee manages the trust and makes decisions about how assets are handled. This can be a person or a company, and they must follow the rules set out in the trust deed.
Beneficiaries: Beneficiaries are the people or entities who receive the benefit of the trust – such as income or assets.
Assets: These are anything of value that can be legally owned, such as cash, property, investments, shares, etc. Assets are held in the trust, not in your personal name.

Did you know?

Intellectual property can be held in a trust.

Be Aware

Even though trusts are not deemed legal entities, they are still treated as taxpayer entities for tax administration.

Why Use a Trust?

Everybody wants their assets to be well-managed. When set up correctly, they can play a key role in how you manage risk, control assets, and plan for the future.

Here are some common reasons people use them:

Asset Protection

A trust can be used as part of an overall asset protection strategy because assets are held by the trustee for the benefit of the beneficiaries, rather than in an individual’s personal name.

Whilst this may provide some protection, a trust does not automatically protect assets from every risk, debt or legal claim, and the level of protection depends on the trust deed, the trustee structure and the surrounding circumstances.

Flexibility and Control Over Income

• Particularly useful for families.
• Trusts allow for income to be distributed in a flexible way. Income can be allocated based on individual needs, or for more efficient tax outcomes.
• Set guidelines around access and use.
• A trust outlines how wealth is to be managed and distributed. In practice, they help to ensure money is assigned and used as intended and can provide ongoing oversight in your absence.

Scenario: With a growing investment portfolio, a couple set up a discretionary trust to hold assets for their four children. This helps ensure wealth is retained and distributed fairly as the children get older. All to say, income is not locked to one person.

Long-Term Wealth Planning

Trusts may be used as part of a long-term strategy to grow and preserve wealth. By reducing the need to repeatedly transfer ownership, they may simplify the process of wealth transfer and promote a steady asset base. This may be ideal, promoting intergenerational wealth planning or business interests, for example.

Scenario: Steven is starting a new business venture, ripe with uncertainty. To mitigate risk, he moves his long-term investments into a trust. This helps to reduce personal exposure during periods of higher financial or legal risk.

To read up on more potential benefits, refer to our blog on Generational Wealth Strategies here.

Key Takeaway

When used correctly, they can help to not only preserve, but grow wealth. Assets may be safeguarded from risk, and income and investments can be managed in a controlled, forward-looking way.

The Three Main Types of Trusts

The structure you choose today can shape your financial future.

	Discretionary Trust	Unit Trust	Testamentary Trust
How it Works	Trustee decides who gets income and when	Ownership is split into fixed “units” (like shares)	Created in a will and begins after death
Control	Flexible — decisions made each year	Fixed — based on units owned	Set out in your will
Income Distribution	Can be shared between beneficiaries as needed	Paid according to ownership percentage	Distributed according to will instructions
When it Starts	During your lifetime	During your lifetime	After death
Typical Use	Families and small businesses	Business partners and joint ventures	Estate and inheritance planning
Example	Income split between family members each year depending on needs	Two partners each own 50% → each receives 50%	Assets held in trust for children instead of being given outright
Best For	Flexibility, tax planning, asset protection	Clear ownership between multiple parties	Protecting and managing inheritance

For more information on Testamentary Trusts, check out our blog post here.

When are they beneficial?

If you’re thinking about protecting what you’ve built, or who it’s for, a trust is often a part of the conversation.

A trust can be beneficial:

If you run a Business: If you’re running a business, especially in a higher-risk industry, a trust can help separate your personal wealth from your business activities, limiting your exposure to business liabilities.

If you’re investing or building wealth: If you’re accumulating assets, a trust can provide a structured way to hold and manage them over time, supporting long-term growth strategies.

If you want to protect family assets: Trusts can be used when families want to protect against external risks and ensure assets are managed responsibility. For example, they can be particularly helpful when there are concerns about financial discipline.

You’re planning your estate: A trust can be an essential function within a broader estate planning strategy. It may control when and how assets are distributed and provide ongoing management.

It’s not what you own – but how you own it. The way your assets are held can impact tax outcomes, flexibility, and long-term planning, and is just as important as the assets themselves.

A Common Strategy: Income Splitting for Tax Efficiency

One common strategy is income splitting, where a trust distributes income to different beneficiaries. This can sometimes reduce overall tax—but the ATO closely monitors arrangements that aren’t genuine. With frequent ATO changes, it’s important to have an updated, considered approach to trusts.

Note: You should always get advice from your advisor to see if a trust suits your personal circumstances.

Other Considerations

While offering benefits, they also come with responsibilities.

Setup Costs

Upfront investments, such as legal, accounting or advisory costs, help get the structure right from the start.

Ongoing Costs

Ongoing administration, such as annual tax returns and record keeping, help to ensure compliance yet impose recurring costs to be aware of.

More Complex

Not as simple as personally owned assets, trusts call for ongoing professional advice and management.

Ownership Structure

The trust owns the assets, not you personally. This impacts your control, access to funds, and financing and lending arrangements.
Certain tax rules – like those affecting inherited property – can become more complex when trusts are involved.

Want to Learn More? Speak to an Expert!

A trust can be a fantastic tool for protection and planning, but it is not a one-size-fits-all approach, and may not be best for you if your financial situation is simple or you’re costs involved don’t outweigh the benefits.

If you’re unsure whether a trust is right for you, getting tailored individual advice is the best next step.

Our Legal and Accounting teams can work together to see what asset protection structure will suit you and your circumstances best. Get in touch today.

This article contains general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice.

Trusts 101: A Simple Guide to Protecting What Matters