If you run a business, invest in anything more exciting than a savings account or have relatives who talk loudly at barbecues, you’ve probably heard the phrase, “mate, you should chuck it in a trust.”
People say it with the same confidence as “You should try the keto diet.”
No details. No explanation. Just "vibes".
So let’s unpack discretionary trusts properly. What they do. When they shine. When they’re a pain. And whether they deserve a spot in your business or family structure.
A discretionary trust is a structure where a trustee looks after assets and decides each year how the income gets shared around. Nothing is fixed in stone. The trustee has the freedom to choose who receives what based on what makes sense for the trust and beneficiaries at that point in time.
When it’s managed well, a discretionary trust gives you flexibility, tax planning options and a decent layer of protection around your assets. It can adjust as life changes, which is why many families and business owners like having it in their toolkit.
The pros
1. Flexibility with income
Each year you choose who gets what. Lower tax bracket? Bigger slice. Higher bracket? Maybe this isn’t your year, champ.
2. Asset protection
If you’re in a risky industry or just don’t want one rogue lawsuit turning your wealth into dust, a trust keeps assets out of your personal name.
3. Estate planning helper
Trusts can keep things smooth when you’re no longer around. Less drama, fewer family tiffs, more control.
4. Great for growing families
Your beneficiaries can change over time. Kids arrive, partners change, in-laws come, go, reappear. The trust can adapt without needing a full restructure.
The cons
1. They need active management
Discretionary trusts aren’t a “set and forget” arrangement. You need yearly resolutions, clean accounting, and an adult who understands what’s going on.
2. Can’t distribute losses
A trust can’t pass losses to beneficiaries. If the trust loses money, it stays in the trust and carries forward, which isn’t always ideal.
3. The adult supervision costs money
Trusts usually mean extra accounting and legal fees. Not “sell a kidney” level, but more than your average sole trader setup.
4. The ATO keeps things interesting
Rules and eligibility change more often than Netflix recommendations.
When a discretionary trust is worth its weight in paperwork
1. Family businesses
If your partner, adult kids, or parents help in the business, a trust lets you share income fairly and efficiently.
2. Asset protection for business owners
Tradies, professionals and directors who want their personal house not dragged into a business issue.
3. Asset protection for investments
Helps keep that property or share portfolio tucked away and out of reach of bad guys.
4. Growing families with evolving needs
The trust flexes as your family changes instead of needing a full structural rebuild.
1. You want the simplest possible setup
A company or sole trader structure is far easier if you want minimal admin.
2. Your income is predictable with no need to share it
Then the trust flexibility isn’t doing much for you.
3. You hate paying your accountant
C’mon guys, we’re alright. They are a lot more expensive to operate so if you don’t like paying they may not be for you.
4. You’re allergic to paperwork
Trusts need discipline. If your filing system is “random drawer in the kitchen”, maybe not yet.
A discretionary trust is a powerful tool. But like all powerful tools, it works best with a clear purpose. If you want flexibility, asset protection and options as your family or business grows, it can be brilliant.
If you want the easiest, cheapest possible path, there are simpler structures that make more sense.
If you want to map it out properly, grab us for a chat. We’ll tell you straight whether a trust will help you or whether your mate at the pub is just throwing out buzzwords again.
– The team at PAL (making accounting slightly less boring since way back when)
Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!
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