Family Trusts In 2026

Jason · 00:00Welcome to the Numbers game. I'm Jace. I'm here with Nick. How are you mate? Good?

Nick · 00:04I'm good mate. Yeah, feeling good. Mate, we're just missing Marty at all. Hopefully still listening.

Jason · 00:11No, he will be, he will be, because he wouldn't want to miss this conversation around family trust, whether they're powerful or problematic.

Nick · 00:17Oh, and that's what we're talking about today?

Jason · 00:19That is what we're talking about today. It took me a long time to think of that, so I hope Marty really liked it. But essentially what What you would cut boils down to is a lot of my day-to-day conversations come in after the fact where there's mistakes, there's small decisions that were made over the course of time, usually before I was involved or before, you know, we we kind of meet with potential new clients or clients that come over to future advisory and we review their structure. And often we find that a lot of people have a family trust. Now, Nick, I'll uh throw it to you and ask, you know, do you have a family trust in your structure? I already know the answer, but tell us. Yep. And your understanding, um you know, take it back all the way to day one, the first time somebody said you need a family trust. What was kind of the the depth of the explanation that got you to go, cool, uh that done. I need a family trust.

Nick · 01:06purely based on um uh splitting income. Yep, cool. That was that that was probably as far as the conversation. with.

Jason · 01:14Yeah, awesome. And look, I mean that's that's definitely up there in in one of the, you know, the beautiful reasons family trusts exist. They're actually discretionary trusts is kind of the more uh correct term family trusts uh the other common name. But essentially, as you said, the splitting of income, you know, if you've got other family members, the the trust either receives distributions of profit. Or if it's a trading trust and you're running a business through it, you make $100,000 income. Rather than you, Nick, paying tax on the whole, $100,000, you can choose to distribute to other family members who will pay tax. Now you go back uh to the dawn of time of this, you know it was much simpler days and you know, the c part of this going whether it's powerful or problematic. is now just all of the things that you continue to need to understand when you have a family trust that continue to change year on year. The ATO brings in new rules, there's constant changes. Um and I just wanted to kind of unpack a little bit about why anyone with a family trust should care about the changes that are coming up. And then anyone who doesn't have a family trust, the things that they need to know before they get into it. How's that sound?

Nick · 02:17Sounds good. Question before we start? Let's do it. Can I list my third cousin on my family trust?

Jason · 02:22As a secondary beneficiary or uh no, it depends on your trusted.

Nick · 02:26There you go.

Jason · 02:27But no, it's uh yeah, I mean look, these things uh you know they were created for for flexibility, um, income distribution and income splitting was definitely uh what you know kind of kind of the perks. The other one's around asset protection. So You know, you you might be at home listening to this and you're a soul trader and someone's told you you shouldn't be a sole trader anymore. You you should be a family trust and We often hear of sole traders that have a conversation with their accountant and the accountant goes, nah, there's no point spending the money. You know, you're making 80,000, 90,000 profit, you're a single income household with no other members of the family to distribute to, you should stay a sole trader. Potentially okay advice. What's not being considered there is whether as a business owner you are taking a risk. So if you're a sole trader and you have an ABN in your name, You are the person responsible, you are the person that can be targeted in the event of being sued, something going wrong, you know, the debts that you enter into. The other side outside of income splitting for a family trust, the fact of the matter with a corporate trustee, which is a company that acts as the trust for a family trust. You have a separate legal entity. So when you have a separate legal entity, not only is it great for income splitting as a family trust, but you have asset protection. So they're the considerations that a sole trader should make of whether they should restructure or not. But the other things that we're kind of getting into, um, you know, when it comes to having a family trust is a lot of people don't understand all the rules that that govern a family trust and the things that you need to Make sure you tick off year to year. And one of the big ones is distribution minutes. So before thirty June, I assume you sit down with your accountant and you plan how your uh distributions are gonna happen and that's documented and signed before thirty June.

Nick · 04:11Yeah, generally twenty-ninth at about five PM

Jason · 04:14Very, very good. I like it. Um love it. But which is which is great. And look, I mean, it's it's very common. It is usually left to the last minute. There's accountants around the country scrambling to call clients, say, please sign this document.

Nick · 04:27So just just on that though, and um I'm just thinking as we're talking here, there if you're trying to understand what to distribute A lot of times you wouldn't have a read on that on the 29th of June. Why? Well yeah, because you're probably not up to date on other things.

Jason · 04:47Yeah. So this this this becomes one of the most uh hard parts if you are on unorganized, if you're looking after your own bookkeeping and you haven't reconciled your file, let's assume you're using zero. The what then happens is you need to make a best estimate or guess. And usually what works better is to not to have a fixed distribution that says Nick gets a hundred thousand and Alicia gets fifty thousand, you do it as a percentage of income. So a percentage of income that flows through the family trust. 50% is going to go to Nick, 30% is going to go to Alicia, and then 15% or 10% whatever's left over each to child one, child two, if they're adult beneficiaries. bucket company, but you either do it as percentages or you go the first 100,000 here, the next 20,000 here, if you know definitely there's going to be 120,000 for example, and then all remaining income goes here. So as you start to break it down, and that's why you have to be really careful about how you word distribution minutes and and the way you go about it, and obviously referring back to the trusteed, because there's certain rules around how you distribute income. There's also then regular income versus capital. So if you've got a capital gain, there's also uh passive income like dividends and the franking credits. So these are all things that are complexities to a family trust that not a lot of people think about on day one when they set one up. And it can be Quite a difficult conversation when you talk to someone and go, oh, your your family trust hasn't been compliant because you didn't fill out these forms before thirty June. Well, I didn't know about that. So the those conversations are difficult. And the risk, and you know what happens there, and we've talked about it before for anyone who's a regular listener, but when you get that wrong, the the tax rate isn't, you know, let's say your average rate of tax is 30 cents to the dollar. Or you've got an adult child who's at an adult beneficiary who is your child.

Nick · 06:39What's sports is that eighteen plus?

Jason · 06:41Yeah, eighteen plus. And and let's say they're studying Um, they're not working and you're distributing to them because you're covering their board, their university costs, whatnot. If you do all that, they might have an average rate of tax of twenty cents to the dollar

Nick · 06:53Yeah.

Jason · 06:53But you might be in the top bracket of 47%. So why wouldn't you distribute to that adult beneficiary and save the tax? And it's all part of what you can do as long as you document it properly and as long as it's all accounted for. If you don't do that. Even if you gave that money to pay for the school fees or, you know, m pay for board, pay for living, if you don't document it properly and do it right, you cop 47% tax or the trust cops 47% tax. So and that that's how easy it is to get it wrong. Um so that and the flow-on effect to that now of why this is becoming more important is there's some tr there's some changes in rules around family trust and also an increase to the ATO's Reporting capabilities. So now when you lodge the Riley Family Trust tax return, and let's say, you know, you put down the third cousin on the tax return and said you're going to distribute them 50 grand. But, you know, maybe the money didn't go to them straight away or whatnot. What's going to happen is when your third cousin goes to do their tax return, your family trust information. We'll now cross-reference to their pre-fill report and it will say Riley Family Trust distributed you $50,000. And I'll tell you what, there's going to be a lot of adult beneficiary children that are at university or living at home with parents that their parents look after their tax returns between the age of eighteen and let's say twenty-five that have no idea necessarily how much money is being said that it's been distributed to them. That's going to pop up on their pre-fill report now. And there's going to be some questions in the family household that go, hey mom, hey, dad, why does this say that I received $90,000? Like, I didn't see the money. Like, what's going on here? And it's it's it's an awkward one or an interesting one to get through each year when that does happen. But now they that you wasn't necessarily as visible as it will be now when it's going to be popping up on their pre-fill report. Which is part of, you know, they can log on to mygov and flow through their pre-fill. It's going to sit there and say whether a family trust distributed money or not.

Nick · 08:51So is is the issue um Is the issue whether or not it's declared, because something I just picked up there on the return, or is the actual issue with whether whether or not they actually got the money?

Jason · 09:05Both. So the the ATO is closing loops. So in the past, you know, and let's say there's a genuine mistake. Let's say Robinson Family Trust You know, I helped my dad out and I I was gonna I sling him 20 grand. I thought, well, actually, rather than doing that, I'm just gonna do it as a beneficiary. Dad's in a low tax bracket. Awesome. But let's say I didn't tell dad that I did it as a distribution, not by deliberate choice, like just a slip of mind. That's 20 grand of taxable income that he may never put on his tax return, but it went out of my family trust tax return. And in the past, it might take a long time for the ATO to match all that together, or with the amount of data that goes around, sometimes it doesn't get matched. And and there's there's income that's been declared to go somewhere that nobody's ever paid tax on.

Nick · 09:49Yeah, and I'd say in a lot of cases people won't have the money. So, you know, if you get to the end of the year, this is traditionally what happens, and your accountant says, Okay, you've earned four hundred grand, uh car gonna distribute a hundred here, a hundred here, a hundred here, a hundred here. But you've probably spent that money throughout the year. So if you've said, I'm going to distribute a hundred thousand to my mum, but you've used that during the year to fund your lifestyle. Yep. Where's the money come from?

Jason · 10:14So, and that is now where section 100A, you know, and again, there's been earlier apps, but sometimes the HO brings things out, they create a new rule. And there's a bit of a not so much a grace period, but they don't come down like a ton of shit up front. We're now a few years into section 100A, which is that that example of you said mum was getting a hundred grand. You've spent it, but you're gonna get Mum to put it on her tax return and gonna pay her twenty-five thousand dollar tax bill and say, Yeah, Mum, you know, we'll work that out later. That doesn't fly anymore. If if mum didn't receive the money and get the benefit of that money, and it's not always the cash, it's the benefit of the money or the benefit that comes out of it. So the example might be you have a holiday house that is would have been rented out for a thousand dollars a night. Maybe your mum stayed there. fifty nights of the year and instead of paying you cash it came off that family trust distribution that is the value of fifty thousand dollars. And then maybe, you know, your mum's paying uh doing a course, an MBA, and you paid for your mum's $50,000 MBA. F All of a sudden you have distributed $100,000 to mom. She's got the benefit of $100,000 worth of money that you would have had alternatively. And that is enough to say, you know, there's some agreements and things you'd sign off on to say how that came about. And you'd still have to pay the tax on the hundred grand that was distributed through mum's tax return. But back in the day, yeah, mum has to pay it. out of her hundred thousand dollars worth of benefit. There's a lot of grey area there.

Nick · 11:44Like if you start saying, oh, mum rented my house or mum was living in my house rent-free or

Jason · 11:50And that's that's where adult beneficiary or adult children come in. If you've got a child living at home who's studying full-time, if they weren't living at home, how much would they have paid in rent to rent a room like the one that you have in your house So this is where you're coming up with the agreement to go, and this is the this way you've got to get it right. I mean, you know, I'd hate to be the first person who gets ordered and and and you know gets looked at and goes, well, hang on, you distributed X to your 18-year-old daughter.

Unknown · 12:15Yeah.

Jason · 12:15How did you come up with that figure? Why were they distributed this amount? And can you show us how it was done? Was it in cash? This, that? So, and this all comes down to planning. Like then and now this is why the the change of the pre-fill report, that 18-year-old daughter's gonna see whatever the dollar figure hit her tax return. She's gonna see obviously In the past, parents just pay the tax bill and the daughter never s or daughter or son never see what that amount is. But now that you're gonna be able to look back on pre-fill reports and you know, you generally got up to ten years worth of pre-fill reports you can go and download from your MyGov account. They're the all the history history won't appear, but moving forward, this is just something you've got to think about. That if you say you distribute to someone, You're gonna be asked questions down the track if you didn't make it fully apparent to them that you were using their return in a certain way or or declaring a certain amount.

Nick · 13:04I'll tell you another area that I've seen as an issue that people have not thought about and got caught out on. Yep. Distributing to someone older?

Jason · 13:13Okay. So pensions?

Nick · 13:15Yes. Pensions. Yep. So you've got um a seventy-five-year-old mother or father that's on the pension from the government. You think, well, Mum's not earning anything. I'm gonna sling her a hundred grand. Mm-hmm. Generally delayed because, you know, as we know, you do your tax return and oh

Jason · 13:34Yeah, okay, I could be seeing the problems all unravel in front of my eyes here.

Nick · 13:39ATO knows that, you know, Mrs. Riley earnt on a a hundred thousand last year. Yep.

Jason · 13:44They go hang on, we send that to Centralink.

Nick · 13:46We Yeah. Yeah. We paid you a pension last year. You owe us this much because you didn't declare that you'd earn a hundred thousand dollars. And sometimes this can take a year or two.

Jason · 13:55And and I raise your pension and go back to family tax benefit, child support, child rebates. Like they they this is where Very easy to forget that powerful structure, problematic structure, timing differences. You've really got to plan it and get it right and Like like anything in the tax world and, you know, the financial planning world, this this planning ahead and getting it right is so crucial. And in this technology-driven world, it's only getting more and more apparent, like how important it is to get these right. L Um, the other one that's probably quite interesting, one, and you and I are We follow a lot of different sprukers and and people on uh Instagram and online that will, you know, say to buy a property in a family trust. Now, buying a property in a family trust, you know, we're talking about the power of a family trust and They have been fantastic structures that people have used for so so long to build wealth and to pay less taxes a family. and to protect assets. But what we are seeing now is this rise in inquiries of people wanting to buy a property in a family trust. And there's things to understand like how land tax might be different in a family trust, how borrowing capacity might be different in a family trust, and then the annual costs of it's not like if mum and dad own a rental property, it's like an extra hundred dollar schedule on their tax return. as individuals when you own and operate a family trust with a corporate trustee, again the setup costs, but the annual fees for financials and tax returns are much more expensive than if you'd bought that personally. Uh but you might be able to enlighten us, Nick, on why the family trust has become this big thing for buying property.

Nick · 15:30Yeah, well, um, great question and very timely question. And and we know that there's been a a rise in um property advisory groups that are helping people buy investment properties and with social media now there's there's far more access to that information as we've spoken about. But traditionally there are there are policies out there from certain banks that allow you to isolate the assessment of a loan application based on that individual call it entity or vehicle or trust. So Um, I won't go into the full details, but it doesn't take a full anest an analysis on someone's overall position. It just isolates that particular trust and the the income and the liabilities or expenses inside that trust. So in a lot of cases, what it allowed people to do is not be limited to borrowing more based on their personal income. because the trust was isolated. So it allowed people to borrow more quicker and obtain property portfolios quicker. My theory is it was there for sophisticated investors, people that really understood what they were doing. What's happened in more recent times, and I'm talking in the last few months, even six months. Um Obviously, when uh a policy or there is a loophole uh that people become aware of, it generally gets exploited. And what happens when things get exploited, they generally get shut down. So with access to information through social media, certain property people putting this information out there, there's been a A massive uptick in people going to banks, lending in trusts and buying properties in trusts and setting up trusts to buy properties. Um what's happened more recently is the banks are concerned about the spike in those loan applications and it's risky because you've got, you know, someone on a particular income. Because they bought in the trust structure, they're borrowing far more than they would have been able to borrow if a full assessment was done if they were the individual borrowers.

Jason · 17:35Yeah.

Nick · 17:36We've seen the likes of Macquarie Bank, ANZ and CBA now will Macquarie have retracted that altogether, that product for the time being. Um and the likes of ANZ and CBA have made it very difficult now to be able to utilize that product. So the banks are worried about the amount of applications they had coming through, mum and dad investors. buying multiple properties in trusts. Yep. So shut those policies down or made them very difficult. So again, there's a loophole, gets exploited, regulators come in and shut it down. So that's what we're seeing at the moment. And I personally I like it because I think the product is great for the right people. And I think what will happen is those products will be available. for the right people. Yeah. And there'll be checks and balances to determine if they are the right people. But what I don't like is people that take advice purely because they've seen something online and think it's the right thing to do. Um the fast forward 10 years time, you have an issue, you've got three or four property debts that you're trying to fund. Um and if you look at A full analysis on a client, the bank would never have given you that money if they went into the um the process they would for someone who bought in the individual name. So Yeah, I th I I think the products will be there, but there'll be more um there'll be more more hurdles to get access to them.

Jason · 18:53Yeah. And and look, speaking of the hurdles, one thing we're definitely seeing is in family trust land, every time we do something with a bank that involves a family trust You know, it's getting it certified, it's putting numbers on pages. Um it's uh you know, essentially it probably comes down to that anti-money laundering and what is it, KYC, uh know your customer. Yes. But like Oh, it just feels like every time we have to do something with a family trust, it is complex. It is painful. Um, I'm hoping at some point it gets easier, but I think it's only getting harder or the banks have more, you know, boxes to tick um as we go through. So Uh definitely an interesting one. And look, I uh half the things we go through today, it's not because I don't think family trusts should be used and I don't think they're useful. Uh you know, I just want to make it really clear that a family trust Is a super powerful and crucial part of any good business or corporate structure. Whether you trade through a trust and have a bucket company, whether you run a company owned by a family trust. They're all different variations that it that they only work really, really well when you have a family trust. I think a lot of people then say I don't have a family, so there's no point in me having a family trust. And again, the wording can can be complicated that way.

Nick · 20:07Or I don't trust my family. Yeah, well, you don't trust your family.

Jason · 20:09But the discretionary part is that even if you don't have family members to distribute to, one day you might meet a partner who becomes a beneficiary because they become your spouse and it's worded into the trusted. So if you are, you know, in your in your twenties starting a business and you don't, you know, you haven't found your life partner yet, you're going, no point having a family trust or a discretionary trust. It's not for me. I'll I'll work it out later. One of the other big considerations that become problematic is not beginning with the end in mind. The old uh saying seven habits of highly successful people is I can't even get the word out, but People who go, no, don't need a family trust, got no one to distribute to. And that is the short term, often the the reality of the short term. They start a company. And they build wealth or they build value in that company. And they might get a few years down the track. And this is so common. It's one of the one of the best areas of consulting or or project income that we get to make as accountants. Is somebody comes along with a company with their shares owned individually and they're saying, hey, I've built this company, I'm going to sell it in the next five years, or you know, I'm going to bring on some sh other shareholders and sell some shares. It's cool, but anything that you do now, you are the only individual that owns the shares in that business. Every time you pay a dividend, you're paying a hundred percent of the tax on the dividend from that company. You may have then met a partner, um, had kids, you've had the business for a long time. But the longer this goes on where you didn't have a family trust in place, You've now got a problem where you, the individual, have to sell the shares to a family trust to get them out of your name. That is a CGT. Um uh that is a CGT moment. You have to pay capital gains tax. And essentially when you think about it, you're selling the the shares from you to you. Like you're in control of the trust.

Nick · 21:56Paying tax for no real no gain, right?

Jason · 21:58Paying tax for no real gain because it's just a paper movement of the shares there to there. And it and it people get really frustrated because it's like, well, that doesn't make sense. Like it's my family trust. I'm just moving the shares. But it's one of those things where because it is a separate legal entity, you must value the business. So there's there's a cost in valuing the business. There's a cost in selling the shares because you've got to pay capital gains tax. There are some big wins you can have though. So again, like if you know you've got to look at every opportunity and go, well, it can be a problem. You can then access small business CGT concessions, throw some money into super, activate some rollovers. But at the end of the day, the cost to set up that family trust on day one to have the U-But structure probably would have been two grand. The cost to then go, I'm not gonna do it now because I don't need it, but down the track there, you're probably looking at five to ten grand minimum to value and roll over and or sell those shares to then get the family trust into the structure.

Nick · 22:54Yeah. And so it comes back to they're there for a reason and when they make sense they're fantastic. Where they don't make sense and with a lot of what we're seeing at the moment is where they're exploited. Yep. So it's exploited uh in regards to income distribution. So I'm now going to add my third cousin who I've, you know, who I've never met. It's exploited in regards to lending. So now I can lend more than I should be able to. And then that's when you have regulators come in, whether it's APRA or the ATO that start to shut this stuff down. So I think I think what like the message and we always sing this message, but it's advice and make sure it's the right thing to do. Yeah. And what we're seeing now, the two topics we've spoken about, it's because people are doing the wrong thing, really. Um, so yeah, just get advice and make sure it's right for you. Yep, a hundred percent.

Jason · 23:44I think uh if you do have a family trust, obviously do not distribute income without understanding the cash consequences of the tax bills that someone's gonna have to pay. Also the consequences of that now appearing on a pre-fill report. Don't miss the 30 June deadline. So I'm glad on the 29th of June, 5 p. m. you'll be signing that paperwork. Um comes down to as well, I mean Always talk about it with tax planning. If you've got a family trust, you must do tax planning. You must sit down and run the numbers to look at how you're going to do it, whether it's percentages or whatnot. Um, also though, on the other side of this, I mean you might hear me talking about the pre-fuel report's gonna have trust distributions. If you're expecting a trust distribution and then later on this year you go to do your tax return and there's nothing on there on the pre-fuel report. Don't assume you didn't get a trust distribution and lodge your tax return and move on with life. There's often usually a timing delay because let's say that family member who usually distributes to you. They might not do their tax until March 2027. You might be lodging your tax return in July or August 26th because you want your refund. What's going to happen is if the if the distribution did happen on paper and it's just delayed, you're going to get an amended notice of assessment. You're going to pay your tax bill, you're going to owe the ATO money back, be a nightmare.

Nick · 24:56So that's the That's where the pension and the family tax beneficiary can come in because delayed.

Jason · 25:02Yep. Yep, correct. So yeah, super crucial to get it right. I think um slowing down, getting advice and getting structures like that right, they're powerful. Just don't make them problematic by knowing the things that you need to do and the timing around it all. So family trusts in closing, powerful structures, they reward discipline and they punish convenience. In 2026, there is a cost of getting them wrong, and that's no longer theoretical. Game over. This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed.