A family trust (also known as a discretionary trust) is the most common trust used by small to medium size business owners, investors and medical professionals in Australia. They are generally set up to hold a family’s assets and/or business for the benefit of providing asset protection and tax planning for family members.
From a tax perspective the main advantage is that any income generated by the trust from business activities and investments, including capital gains can be distributed to beneficiaries in low tax brackets to significantly reduce taxes. And the distribution is discretionary, which means, no beneficiary is entitled to receive income or capital, so in the example where one beneficiary was sued, the trustee can decide not to distribute income of capital to that beneficiary. Assets can also be transferred from generation to generation tax and duty free.
In most cases, from an asset protection perspective, assets held in a family trust cannot be attacked by creditors or lawsuits.
Other types of discretionary trusts are testamentary trusts, child maintenance trusts, property trusts, special disability trusts and charitable trusts.