Family trust vs unit trust vs discretionary trust
Three of the most common trust structures, three different purposes. Here's how to tell them apart.
A family trust (typically a discretionary trust elected as a family trust) gives the trustee broad discretion to distribute among family beneficiaries. A unit trust splits beneficial ownership into defined units, like a company. A discretionary trust is the broader category – any trust where the trustee chooses distributions among an identified class.
Discretionary trust
The trustee decides each year who in the beneficiary class receives income or capital, and in what proportions. Used widely for asset protection, income splitting (subject to anti-avoidance rules), and intergenerational wealth transfer.
All family trusts are discretionary, but not all discretionary trusts are family trusts.
Family trust
A discretionary trust that has made a family trust election with the ATO. The election locks distributions to a defined family group, and unlocks important tax concessions (franking credits, loss recoupment, trust streaming). Family trust elections are usually made early in the life of the trust.
Unit trust
Beneficial ownership split into units, similar to shares in a company. Each unit holder is entitled to a defined proportion of income and capital. Unit trusts are common for joint ventures, property syndicates, and structured investments where multiple unrelated parties contribute capital.
Hybrid arrangements
Some structures combine features – a hybrid trust might have both unit holders and discretionary beneficiaries. Hybrid trusts have specific tax treatment and are less common today than 10-15 years ago following ATO scrutiny.
Summary
Three of the most common trust structures, three different purposes. Here’s how to tell them apart.
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Disclaimer: This article is general information only and does not constitute legal advice. Estate planning is deeply personal - every family's circumstances are different. For advice specific to your situation, please contact Rosewood Succession Solicitors.