Trusts are one of the most challenging asset types in family law property matters. Whether it’s a family discretionary trust, a hybrid unit trust, a corporate structure wrapped inside a trust, or an SMSF holding trust assets, practitioners must understand how a trust operates before advising clients or attempting to draft Orders that deal with trust property. Complex property matters involving trusts are rarely resolved by technical knowledge alone. They require a structured approach to understanding how the asset pool is formed, controlled, and capable of division. This begins in the Assess stage, where the existence of trusts, entities, and financial structures is identified, and continues through Explore, where those structures are unpacked and understood. By the time a lawyer is advising or drafting orders, the matter has already been shaped by how well those earlier stages were approached. Without that foundation, even technically correct advice can miss the strategic reality of the case. This guide breaks down the essentials every lawyer must master.

1. Understanding the Main Types of Trusts

Different trusts function differently and this affects control, value, disclosure and how property can be dealt with in Orders. 🔹 Discretionary (Family) Trust

• Most common in family law matters
• Trustee has absolute discretion over who receives income/capital
• Beneficiaries usually have no fixed entitlement
• Control typically sits with appointor, trustee, and those with power to remove/replace them
• Key documents: trust deed, financials, distribution minutes, variations

🔹 Unit Trust

• Beneficiaries (unit holders) own fixed units
• Entitlements (income/capital) are proportional to unit holdings
• Easier to value as units have a calculable worth
• Often used for business structures or investments

🔹 Hybrid Trust

• A blend of discretionary and unit trust features
• Units may exist, but trustee retains discretionary powers
• Valuation depends on both unit value and control mechanisms
• Complex for family law because entitlements can be partly fixed and partly discretionary

🔹 Bare/Passive Trust

• Trustee holds asset for a sole beneficiary who has full control
• Common for minors or simple arrangements
• Often treated as if the beneficiary owns the asset directly
• Common for limited recourse borrowing for SMSF

🔹 Testamentary Trust

• Established under a Will
• Usually discretionary
• Provides asset-protection and tax flexibilities
• Important to identify whether assets were post-separation inheritances

2. Corporate Trustees vs Individual Trustees

Corporate Trustee

• A company acts as trustee
• Control lies with directors/shareholders
• Replacement of directors = effective change of control
• Assets are not owned by the company; the trust owns them
• Essential documents: ASIC extracts, constitution, shareholder agreements

Individual Trustee

• One or more individuals act as trustee
• Simpler structure but higher personal risk
• Changes must be made by deed of variation or retirement/appointment deed
• Must examine whether the controlling party is also a beneficiary or appointor

Why this matters: Understanding where control really sits determines whether the trust is a financial resource, a variable interest, or an asset in the property pool — as well as how orders need to be drafted to be enforceable and effective.

3. How Trusts Hold and Deal With Assets

A trust may hold:

• Real property
• Business assets
• Shares, units, managed funds
• Loans between related entities
• Cash, trading profits or retained earnings
• Intellectual property

Critical considerations for lawyers:

• Who truly controls the trust? Appointor? Directors? Trustee?
• Who receives the benefit? Review distribution minutes and historic patterns.
• Are there unpaid present entitlements (UPEs)? These may be assets or liabilities depending on the structure.
• Has the trust been varied? Variations can dramatically change entitlements, control and tax consequences.
• Are assets encumbered? Mortgages, loans, guarantees must be accounted for.

These must all be answered to appropriately deal with the trust on the balance sheet, in the orders and to ensure effective orders.

4. Income Splitting, Distributions & Financial Resources

Trusts are often used to distribute income tax-effectively across family members. For family law:

• Distribution history shows patterns of financial support.
• Even if a party has no fixed entitlement, regular distributions may be treated as:
  • A financial resource; and/or
  • Evidence of control
• Retained earnings inside the trust may still form part of the pool (depending on control).

Red flags for practitioners:

• Large or unusual distributions leading up to separation
• Loans to beneficiaries disguised as distributions
• Loan-back arrangements
• Trust income used to service personal expenses
• Use of corporate beneficiaries or “bucket companies”

Family lawyers should always request:

• ✔ trust tax returns
• ✔ distribution minutes
• ✔ balance sheets
• ✔ loan accounts
• ✔ director/shareholder info
• ✔ trustee resolutions
• ✔ deeds and variations

5. Drafting Compliant and Effective Orders Involving Trusts

This is where matters can go very wrong if practitioners draft without understanding the structure. The best way to determine this is financial disclosure, deeds and then preparation of flow charts showing control and asset holdings. When the Trust Itself Is Being Altered Orders may need to address and bind parties (and in some cases third parties who need to be joined to the proceedings) to:

• Removal/appointment of trustees
• Changes to directors of a corporate trustee
• Changes to appointors
• Transfer of units or shares
• Cancelling or issuing new units
• Forgiving or adjusting loan accounts
• Assigning beneficiary entitlements
• Updating ASIC records
• Recording deeds of variation
• Valuation timing and implementation steps

When Trust Assets Are Being Transferred Orders must specify:

• Exact property to be transferred
• Whether transfer is by the trust or trustee in their capacity
• Timing of transfer and adjustment for CGT or stamp duty (if concessions apply)
• Whether a deed of assignment or deed of acknowledgement is needed

When Trust Income Is Relevant Orders may provide for:

• Equalisation adjustments
• Lump-sum payments to reflect trust benefits
• Offsetting other assets where trust assets cannot be directly transferred
• Further adjustments for residual assets to offset financial resource and income stream

Essential Drafting Principles

• Use clear, capacity-specific language (“as trustee for…”)
• Ensure orders align with the trust deed’s requirements
• Include every procedural step (ASIC filings, deeds, minutes, resolutions)
• Do not draft orders that cannot legally be enforced by the trustee
• Consider taxation advice for complex restructures

A mistake here can trigger:

• ❌ unenforceable orders
• ❌ tax liabilities
• ❌ ASIC breaches
• ❌ future litigation to rectify defective orders

Final Takeaway Trusts can be powerful, flexible tools in family wealth structures — but they require detailed scrutiny in family law. For practitioners, correctly identifying trust type, understanding control, analysing documents, and drafting precise orders is essential to avoid unenforceable outcomes or unintended financial consequences. A systematic, informed approach ensures:

• ✔ accurate classification of trust interests
• ✔ proper valuation
• ✔ correct treatment as an asset vs resource
• ✔ enforceable, compliant orders that reflect the real dynamics of the structure

When complex property matters are approached in this way — carefully Assessed, thoroughly Explored, and then clearly Created and Engaged through advice and drafting — the pathway to Resolution becomes far more achievable. Trust structures no longer sit as obstacles, but as elements to be understood and worked through with clarity. Ultimately, it is not just the knowledge of trusts that determines the outcome, but how that knowledge is applied within a structured progression of the matter from beginning to end.