Page 7 - Wealth-Adviser-Issue-124 (FWP)

ISSUE 124
NOVEMBER 2025

IS THE FAMILY

TRUST STILL

WORTHWHILE?

TAX, SUCCESSION,

AND ASSET

PROTECTION

IN 2025

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BY WEALTH ADVISER someone said it was a good idea.” Instead, their enduring
role must be understood in the evolving intersection of tax,
Introduction: The Family Trust Under Pressure succession, and asset protection.
The landscape for family trusts in Australia has never
been more complex, as both legal and regulatory attention Tax Advantages and Evolving Challenges
mount alongside the perennial search for flexible, resilient At the heart of the family trust’s traditional appeal stands
wealth solutions. For decades, discretionary family trusts its range of tax planning advantages—chiefly the ability
have held a privileged place for Australian families and to stream income to beneficiaries on lower marginal rates
business owners—valued for their versatility in distributing and employ structures that capture the benefit of franking
income, protecting assets, and achieving sophisticated credits. Flexibility long offered cover for families to adapt
estate planning outcomes. Yet, recent years have ushered in as circumstances change, reducing overall tax burdens
heightened scrutiny from the Australian Tax Office (ATO), where possible. However, as the ATO intensifies its approach
government policy groups, and even public debate, leaving to trust distributions, questions about how much of this
many to ask: are family trusts still fit for purpose in 2025, or flexibility still exists have come to the forefront.
do compliance costs and legislative uncertainty now out- Key recent developments include a sharper focus on
weigh the advantages? Family Trust Distribution Tax (FTDT). This occurs where
Discretionary trusts “remain useful wealth vehicles, but distributions are made outside a legally recognised “family
the burden of compliance is undeniably increasing,” notes group” following the nomination of a test individual in
the most recent commentary from leading tax advisers. The family trust elections. As described in FirstLinks and echoed
administrative obligations—once a minor inconvenience for by Accounting Times, franking credits on dividend distri-
prudent families—now present a major consideration. From butions can attract unexpected FTDT liabilities, such as
family trust elections through to Section 100A reimburse- when companies owned by related but technically separate
ment agreements, directors and trustees alike must grapple trusts receive income. “The ATO is applying narrower
with legislative changes, rigorous reporting, and an increas- legal interpretations to established practices,” the analysis
ingly unpredictable regulatory environment. As one adviser warns, and scenarios previously seen as compliant now risk
recently said, “Trusts should not be set up just because a 47% impost—for example, a $47,000 tax on a $100,000

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