Discretionary trust deeds explained

A discretionary trust deed gives the trustee broad power to choose, each year, who within an identified beneficiary class receives income or capital. The trustee’s discretion – rather than fixed entitlements – is the defining feature, and it’s what unlocks the asset protection and income-splitting benefits.

Trustee discretion is the point

No beneficiary has a guaranteed entitlement. Each year, the trustee considers the family’s circumstances and decides who receives distributions. This means a beneficiary’s creditors generally can’t reach trust assets, and family income can be optimised across the beneficiary class.

Beneficiary class

The deed defines the class – typically the named primary beneficiaries plus their spouses, descendants, and certain other relatives. Family trust elections lock the class to a specific family group for tax purposes.

Trustee powers

Investment, borrowing, distribution timing, capital movements. Modern discretionary deeds give the trustee broad powers, with the appointor’s consent required for the most significant decisions.

Common uses

Family wealth structures: separate business risk from family assets. Income splitting (within anti-avoidance limits). Intergenerational succession with flexibility. Sometimes used as the head trust in larger group structures.

Summary

Discretionary trust deeds are the workhorse of Australian family wealth structures. Here’s what makes them work.

Talk to Sam about your situation

If this article raised questions for your own circumstances, Sam Michele offers free 20-minute initial consultations. Learn more about our trust deed work, or book a consultation.

Related reading

• Family trust vs unit trust vs discretionary trust
• Asset protection trusts in Australia
• Trust deed work