A discretionary trust is one of the most flexible structures available to Australian founders and investors. It can offer meaningful tax planning options, asset protection, and long-term estate planning benefits. But it’s not a set-and-forget arrangement – there are a few key things to get right before you dive in.

What’s the purpose of the trust?

At Standard Ledger, we most commonly help founders set up a family trust to hold their shares when establishing a startup company. But the same trust structure can also hold investment property, a share portfolio or other personal assets.

Your goals shape how the trust should be structured, so it’s worth being clear about what you’re trying to achieve before you set anything up. A trust built for a startup exit looks a bit different from one designed primarily for investment income.

“Setting up the right structure early on can save a world of pain – and a fair chunk of tax – later. We always encourage founders to think long-term and align the trust structure with their business and personal goals.” — Remco Marcelis, Co-founder, Standard Ledger

Who will be the trustee?

The trustee is the legal controller of the trust – they make decisions about how income and proceeds are distributed. You have two options here.

An individual trustee is typically you, plus one other trusted person such as a family member. A corporate trustee is a company you control that acts as trustee. Corporate trustees tend to offer more flexibility and cleaner separation of personal and trust assets, which is particularly useful when it comes to succession planning or dealing with investors later on. The trade-off is some additional maintenance costs – ASIC fees and the like.

Which is right for you depends on your circumstances and where you’re planning to take the business.

Who are the beneficiaries?

In a discretionary trust, beneficiaries don’t have fixed entitlements. The trustee decides who receives distributions each year and in what proportion – which is where the tax planning flexibility comes from.

The trust deed typically includes a broad description of potential beneficiaries, but you can refine this based on your specific plans. It’s also worth knowing you can update the beneficiary definition later, which can be particularly relevant when you’re approaching an exit event.

Ongoing admin and compliance

Trusts require ongoing management. Each year you’ll need to lodge a separate tax return for the trust, keep records of trustee decisions and manage distributions carefully to stay on the right side of the ATO.

That applies even if the trust is quiet – just sitting there holding your startup shares without any active income flowing through it. A nil tax return still needs to be lodged. This is one of those things that’s easy to let slip, and harder to fix after the fact.

Do I really need a trust, or can I sort it out later?

It can be tempting to skip the trust for now, put yourself down as the direct shareholder, and deal with it once the business gains traction. Technically that’s possible – but there’s a meaningful cost to doing it that way.

Transferring shares from yourself to a trust later is treated as a sale by the ATO, which means capital gains tax can apply. Early on you might be able to argue the company has minimal value, but that argument gets much harder once you have a product, revenue or any outside investment. At that point you’d likely need a formal valuation to support any transfer.

Getting the trust in place from the start is almost always the cleaner and cheaper path. We cover the CGT implications of startup ownership changes in more detail in our article on putting money into your startup company.

Getting it right from the start

A discretionary trust can be a genuinely powerful structure for founders, families and investors – but only if it’s set up with the right goals in mind and managed properly over time.