Your Ultimate Guide to Trust Deeds Australia

When it comes to protecting assets or planning for the future, trusts are a common and effective tool used by families and businesses alike. Whether it’s a family trust set up to pass wealth down through generations or an investment trust holding property or shares, the success of these trusts depends on a key legal document—the trust deed. This document sets the rules for how the trust is established, managed, and how its assets are shared. This article will guide you through what a trust deed is, why it’s important, and how it functions, giving you a clear understanding to manage trusts confidently.

What Is a Trust Deed?

A trust deed is a legal document that officially establishes a trust and sets out how it must be managed. It serves as the foundation of the trust, outlining who is involved, including the trustee and beneficiaries, and defining their roles and responsibilities. The trust deed explains how the trust’s assets and income are to be handled, managed, and distributed. It also sets the rules for how decisions are made and how the trust operates on a day-to-day basis. In Australia, a trust cannot legally exist without a valid and properly signed trust deed. This document is essential because it provides the legal framework needed to ensure the trust runs smoothly, complies with the law, and protects the interests of all parties involved.

Types of Trusts in Australia

In Australia, there are several types of trusts, each designed for different purposes. The most common types include:

1. Discretionary Trusts: Also known as family trusts, these give the trustee the flexibility to decide how income and assets are distributed among beneficiaries. This type is often used by families and small businesses.

2. Unit Trusts: In a unit trust, beneficiaries (called unit holders) have fixed shares or units in the trust. Income and capital are distributed according to these units, making it popular for business partnerships and investments.

3. Hybrid Trusts: A hybrid trust combines features of both discretionary and unit trusts, allowing some income to be distributed at the trustee’s discretion while other income is divided according to fixed units.

4. Testamentary Trusts: These trusts are created through a will and come into effect after someone passes away. They are often used to provide for children or other beneficiaries over time.

5. Special Disability Trusts: Designed to support people with disabilities, these trusts help protect assets while providing care and financial assistance.

Each trust type has specific rules and tax implications, so choosing the right one depends on your individual needs and goals.

Key Components of a Trust Deed

• Settlor and Trustee: The settlor starts the trust with a small amount (usually $10) and then steps back. The trustee, who can be a person or company, manages the trust assets and must act in the best interest of the beneficiaries.

• Beneficiaries: These are the people or groups who benefit from the trust. They can be named individually or as a group. In discretionary trusts, the trustee decides income distribution; in unit trusts, beneficiaries receive fixed shares.

• Trust Property: Includes all assets held by the trust, like cash, shares, property, or business interests. The trustee manages these assets for the beneficiaries.

• Trustee’s Powers and Duties: The deed outlines what the trustee can do (e.g., invest money, distribute income) and their responsibilities (e.g., act honestly, avoid conflicts, keep records). Failure to comply can lead to removal or legal action.

• Vesting Date and Clauses: The trust ends on the vesting date (usually up to 80 years in Australia), when assets are distributed as per the deed’s instructions.

• Distributions and Resolutions: Trustees must make a formal annual decision on income distribution. Failure to do so correctly can result in higher tax rates. The deed also sets rules for documenting these decisions.

Trust Deed Amendments and Updates

Trust deeds are not something you set up once and forget about. Over time, changes in tax rules, family situations, or business needs might mean you need to update your trust deed. This is called a trust deed amendment. For example, you might want to add new beneficiaries, change the trustee, or adjust how the income is shared.

Not all trust deeds allow changes, so it’s important to check if your original deed includes a “variation clause.” This clause lets you make changes and explains how to do it properly. Usually, you’ll need to create a formal document called a deed of variation, which must be signed and witnessed correctly.

Updating a trust deed should be done carefully. Mistakes or unclear language can cause legal or tax problems.

Trust Deeds and Taxation

Understanding how your trust is taxed is just as important as setting it up. Different trusts—such as discretionary, unit, or hybrid trusts—are taxed differently. Usually, the trust itself doesn’t pay tax. Instead, the income is passed on to the beneficiaries, who include it in their own tax returns.

To do this properly, the trustee must make a formal decision, called a trust resolution, before the end of each financial year. This decision shows how much income each beneficiary will get. If the trustee doesn’t do this correctly or on time, the trust could be taxed at the highest rate of 45%.

The ATO requires trustees to keep clear records of these decisions and to distribute income as the trust deed says. That’s why careful record-keeping and good planning are essential for managing trust taxes effectively.

Need help setting up your trust deed? Reach out today for clear, expert guidance to get it done right from the start.

Do You Need a Lawyer or Accountant?

While DIY trust deed templates are widely available, they often fall short when it comes to accuracy and trust compliance. Trust deeds are legal documents, and even small mistakes can lead to significant legal or tax complications. That’s why it’s important to seek professional support when setting up or updating a trust.

Lawyers play a key role in ensuring your deed is legally sound and aligns with Australian trust law. Accountants, on the other hand, focus on structuring the trust for effective tax planning and compliance—especially important when managing income distributions or preparing annual trust resolutions. This becomes even more critical with complex structures like SMSFs or hybrid trusts, or when there are multiple beneficiaries involved.

At HelloLedger, our experienced team provides complete, practical support for trust deeds. From establishment to updates and compliance, we help you navigate every step with confidence—ensuring your trust is set up properly, remains compliant, and works for your goals.

Ensure Your Trust Deed Is Accurate and Compliant

Trust deeds form the legal backbone of any trust. Whether you’re managing a family trust, a unit trust, or an SMSF, having a clear, valid, and up-to-date trust deed is vital. It protects your assets, ensures compliance with Australian tax laws, and gives peace of mind to trustees and beneficiaries.

At HelloLedger, we make the process simple. We help you create, review, and update your trust deed with expert guidance, ensuring it suits your specific gals and remains compliant over time. Trusts are powerful financial tools—but only when set up and managed correctly.

book your free discovery call for expert support. If you’re starting a trust or unsure whether your existing deed is still valid, we’re here to help.