How Family Trusts can help safeguard the Intergenerational Transfer of Wealth
Family Law: 31 March 2026
Author: Joel Parsons - Our People
Careful succession planning requires more than a Will alone. Family trusts are often used to protect assets, preserve control and support long‑term family objectives.
The intergenerational transfer of wealth is a topic that has been making headlines in recent years, with around $3.5 trillion expected to be transferred between generations in Australia over the coming decades.
People are understandably concerned about how to protect their assets and ensure that they are safely passed down to their descendants. With constantly changing laws, compliance obligations and personal circumstances, managing your financial affairs is difficult at the best of times. Despite this, a well-structured family trust may be an effective tool available to protect your assets, maximise financial returns, minimise taxation implications and ensure your well-earned wealth is transferred smoothly across generations.
What is a Family Trust?
A trust is a legal relationship whereby one party, known as the trustee, holds assets or property for the benefit of another party, the beneficiary. The trustee is responsible for managing the trust, whilst the beneficiaries are those who will receive the assets or income from the trust. A trust is set up by a settlor, who creates the trust and is governed by a set of rules contained in the trust deed. Another important role in the trust is that of the appointer, who has the power to appoint and remove trustees.
A family trust operates on the same principles as outlined above, where the beneficiaries are typically members of a family group.
Why Use a Family Trust in Succession Planning?
A family trust may be recommended in succession planning for both the asset protection and financial planning benefits that it offers.
Asset Protection
A family trust can assist in preventing potential claims on an estate by creditors, ex-partners and other interested parties.
When a person dies, their assets are split into two categories:
- Estate Assets; and
- Non-Estate Assets.
Estate Assets refer to assets that can be distributed according to a person’s Will or the laws of intestacy (where a person dies without a valid Will). These are any assets that are owned by the deceased in their sole personal name, such as real property owned solely, bank accounts and personal property.
Non-Estate Assets refer to assets which do not automatically form part of a person’s estate upon their death. These includes property or bank accounts owned jointly with another person, superannuation, life insurance policies and trusts. These don’t form part of the estate because the deceased doesn’t own these assets in their sole personally name – there is another legal owner.
Because assets held in a family trust are non-estate assets, this means that they are typically protected from:
- Family Provision Claims where someone contests a Will or the laws of intestacy under the Administration and Probate Act 1958 (Vic); and
- Claims by creditors for unpaid debts.
Financial Maximisation
Having funds in a family trust allows the trust’s income and capital to be distributed to beneficiaries in a cost-effective and profitable manner.
Most notably, the use of a family trust allows the trustee to distribute the trust’s net income to beneficiaries at the trustee’s discretion. This can be particularly useful where, for example, distributions may need to be made in different proportions from year-to-year for taxation purposes.
Further, the use of a trust provides access to the 50% General Capital Gains Tax (CGT) Discount on the sale of CGT assets. Thus, you will often find a trust being used as an ‘investment vehicle’.
Despite the above, the discretion a trustee has to distribute to beneficiaries is not absolute or without limitation. This principle is expounded upon in the landmark Victorian Supreme Court of Appeal case of Owies v JJE Nominees Pty Ltd (2022) VSCA 142 (Owies). It was determined in Owies that if a trustee makes a decision to distribute income and the beneficiaries can prove that such decision was not made in good faith and with real and genuine consideration of the beneficiaries, the decision will become voidable (and potentially void).
It’s also important to note that the ‘notional estate’ rules may apply to family trust assets in New South Wales. The notional estate rules allow the Court to ‘claw back’ property into an estate despite such asset not being owned by the relevant deceased. The case of Wardy v Salier [2014] NSWSC 473 reinforces this concept, meaning that a family trust could in fact be treated as an estate asset, despite not being legally owned by the deceased, and distributed in accordance with the rest of the estate assets as a result.
How to Set Up a Family Trust
A critical consideration for a family trust is the way in which it is established, namely, the rules in which the trust must operate. This includes who controls the trust, who will control the trust now and in the future and who are the beneficiaries (and often most importantly, who are not the beneficiaries). As aforementioned, the rules surrounding the operation of a family trust are outlined in the trust deed. It is imperative that the trust deed is drafted carefully and correctly, as well as reviewed consistently and amended accordingly following changes in family circumstances to ensure that it is fit for purpose.
Divesting funds into a family trust assists with the continuity of control and can help prevent disputes over family assets following the death of a family member. A family trust provides clarity around who benefits from the family’s wealth and under what circumstances.
At Aitken Partners, we work with individuals and families to structure their affairs in a way that protects assets, provides certainty and supports intergenerational wealth transfer. We have deep expertise in drafting and advising on trusts as part of effective succession planning. To learn more about family trusts and how to best manage your estate, please call our experienced and friendly lawyers on (03) 8600 6000.