Who Can Be a Beneficiary of a Family Trust?

Family trust beneficiaries are the people and entities a trustee is allowed to pay trust income or capital to. In most Australian family trusts that means you, your spouse, your children and grandchildren, your parents, siblings, nieces and nephews, plus companies and other trusts your family controls. Two documents decide the final list: the trust deed, and (once it’s made) the trust’s family trust election.

Here’s the catch most people miss. A relative can sit comfortably inside your deed and still cost the trust 47% tax if they fall outside the tax law’s “family group”. With the ATO actively reviewing family trusts and the 2026–27 Budget proposing a new minimum tax, now is a good time to check who’s actually on your list.

Who can be a beneficiary of a family trust in Australia?

Anyone your trust deed describes, provided they can be identified when the trustee makes a distribution. That’s the legal answer. The tax answer is narrower, and it’s the one that bites.

Think of it as two filters. The first is your deed. The second only switches on once the trustee makes a family trust election (FTE), which is a choice made in the trust’s tax return that nominates one “test individual”. From then on, every distribution needs to land inside that person’s family group.

Most people assume the words “family trust” in the name make it a family trust for tax purposes. They don’t. A discretionary trust only becomes a family trust in the tax sense when it lodges an FTE. Many trusts make one to pass on franking credits or use trust losses, so check your trust’s tax returns before you assume yours hasn’t.

Primary beneficiaries vs general beneficiaries

Your deed names a small group of primary (or “specified”) beneficiaries in its schedule. That’s often the person the trust is set up for and their spouse. You can name them outright (“Jane Smith”) or by description (“the spouse of Jane Smith”).

General beneficiaries are then defined by reference to the primary group: their children, grandchildren, parents, siblings, and any company or trust they control. This is what lets the beneficiary pool grow with your family. A grandchild born in 2035 is covered without you touching the deed.

Older deeds went the other way, defining the class as widely as possible. That flexibility now cuts against you, for reasons we’ll get to in the sections on foreign beneficiaries and family trust distribution tax.

Who is in the family group, and who isn’t?

This is the list that decides whether family trust beneficiaries can receive distributions tax-safely once an FTE is in place. It’s worked out from the test individual, not from you as trustee.

Inside the family group	Outside the family group
The test individual and their spouse (including de facto)	Aunts and uncles
Parents and grandparents of the test individual or their spouse	Cousins
Brothers, sisters, nephews and nieces of either of them	Friends, employees and business partners
Children (including stepchildren and adopted children) and their lineal descendants	The spouse of an outsider, unless they qualify in their own right
The spouse of anyone in this column	Trusts with a different test individual (unless they make an interposed entity election)
Companies, trusts and partnerships that make an interposed entity election, or are fully owned by family members	Companies owned partly by outsiders

The aunts and uncles row trips people up more than any other, and the original version of this article listed them as eligible. They aren’t. An aunt can be a beneficiary under your deed, but paying her trust income after an FTE triggers family trust distribution tax.

Family changes matter too. Former spouses, widows, widowers and former stepchildren stay inside the group for distribution purposes after a divorce or death. The group also survives the test individual’s death, because it’s still measured from them.

Can a trustee be a beneficiary of a family trust?

Yes. In most family trusts the trustee (or the directors of the corporate trustee) are also beneficiaries. Parents running the trust for their own family is the standard setup.

The one combination that fails is a sole trustee who is also the sole beneficiary. When the same person holds both the legal title and the entire benefit, the two merge and there’s no trust left. Add a second beneficiary, a second trustee, or use a company as trustee and the problem disappears.

Being both trustee and beneficiary raises real conflict-of-interest questions when you’re deciding distributions that favour yourself. Our guide on whether a trustee can be a beneficiary of a discretionary trust covers the safeguards in more detail.

Who can’t be a family trust beneficiary?

Start with the settlor. The settlor is the person who hands over the nominal sum (often $10) that brings the trust into existence. If they can benefit, the trust risks being treated as their own property for tax purposes, which undoes the point of setting it up.

That’s why parents shouldn’t settle a trust for their own kids. A lawyer or accountant with no connection to the family does it instead.

Your deed can also name excluded beneficiaries. These are people or classes the trustee must never consider, such as an estranged relative or anyone who becomes a foreign person. Exclusions are a feature. Use them.

Finally, anyone outside both filters is off limits in practice. A mate who helped you build the business might deserve a share. A family trust is the wrong vehicle to give it to them.

Can a company be a beneficiary of a family trust?

Yes, if the deed allows it, and most modern deeds do. A company used this way is called a “bucket company”. The trustee distributes income to it so the income is taxed at the company rate instead of a beneficiary’s top marginal rate.

Two rules come with it. The company needs to sit inside the family group, which usually means it’s wholly owned by family members or has made an interposed entity election. And if the trust declares a distribution to the company but never pays it, that unpaid amount can fall under Division 7A and be treated as a deemed dividend.

You’ll need a company before you can use one, so register a company first and check its shareholding stays within the family. The same company can act as your corporate trustee, although plenty of advisers prefer to keep the trustee company and the bucket company separate.

Watch this space, though. Under the Budget proposal covered below, companies are the beneficiaries that lose out the most.

What about children, overseas relatives and other trusts?

Children under 18

Kids can be beneficiaries, but paying them trust income rarely saves tax. A minor’s unearned income above $416 a year is taxed at penalty rates, and once it passes $1,307 the whole amount is taxed at 45%. Include them for flexibility. Don’t build the plan around them.

Adult children on low incomes

This is where section 100A lives. If the trust distributes to a uni student but the money actually goes to Mum and Dad’s mortgage, the ATO can treat it as a reimbursement agreement and tax the trustee at the top rate. The ATO’s 2022 ruling and guidance on section 100A made this a live audit area. The fix is simple: the beneficiary named on paper needs to actually get, and keep, the benefit.

Relatives who live overseas

Non-resident beneficiaries can receive distributions, but the trustee pays tax on their behalf. The bigger risk is property. NSW, Victoria and Queensland can treat a discretionary trust as a foreign person for land tax and stamp duty surcharges if the deed allows a foreign person to benefit. Nobody overseas needs to receive a cent. The possibility alone is enough.

If your trust holds or plans to buy real estate, check your deed for a clause that permanently excludes foreign persons. Lawpath’s variation of discretionary trust deed lets you add one to an existing trust.

Other trusts

A trust can distribute to another trust. If both have made an FTE with the same test individual, they sit in each other’s family group. If the test individuals differ, the distribution is to an outsider and family trust distribution tax applies. Groups with several trusts set up by different advisers over the years are exactly where this goes wrong.

How do the 2026–27 Budget changes affect family trust beneficiaries?

The 2026–27 Federal Budget proposed a 30% minimum tax on discretionary trusts from 1 July 2028. Treasury opened consultation on the design in July 2026. None of this is law yet, and the detail could change.

Here’s how it would work. The trustee pays at least 30% on the trust’s taxable income. Individual beneficiaries get a credit for that tax against their own bill. Company beneficiaries don’t, so income that flows through to a bucket company would effectively be taxed twice.

For family trust beneficiaries, that flips a few long-standing habits:

• Splitting income to a spouse or adult child on a low marginal rate saves far less, because 30% is the floor regardless of who receives it.
• Bucket companies become expensive, since the company gets no credit for tax the trustee has already paid.
• Some income is proposed to be excluded, including primary production income, income for the benefit of certain vulnerable minors, and assets held by discretionary testamentary trusts as at Budget night (12 May 2026).

The Budget also proposed a three-year rollover window from 1 July 2027, so businesses can move assets out of a discretionary trust into a company or fixed trust without triggering capital gains tax. Our honest view: don’t restructure on a proposal. Do get your deed and distribution history in order now, so you’re ready to model the options once the legislation is out.

One deadline is real today. The ATO is offering up to 80% off the general interest charge on family trust distribution tax for trusts that come forward voluntarily before 31 December 2026. The 47% tax itself still applies. If you suspect a past distribution went outside the family group, talk to your accountant before the window closes.

What we see in Lawpath consultations

Lawpath lawyers and accountants work on family trust setups and changes every week. A few patterns come up again and again.

The beneficiary clause is an afterthought. Founders setting up a trust usually lead with asset protection: a corporate trustee, a separate trading company, keeping the family home safe. Who the beneficiaries are, and who controls the trust if the founder dies or loses capacity, gets far less airtime. Those two clauses decide where the money can go for decades.

Deeds get varied more than people expect. A steady share of our trust work is deeds of variation for trusts set up years earlier. The original deed didn’t anticipate a marriage, a child moving overseas, or a property purchase in a surcharge state. Varying a deed is usually fine. Varying it carelessly can trigger a resettlement, which the tax law treats as ending the old trust and starting a new one.

Investment companies owned by the trust are popular. Families often ask us to set up a company owned by the family trust to hold investments. That works well under current rules. Under the proposed minimum tax it needs a fresh look, because the company sits at the end of the chain with no credit.

Multi-trust groups lose track. When a family runs several trusts, we see lodgements fall behind and nobody quite sure which test individual each FTE named. That’s the exact scenario the ATO’s amnesty is aimed at.

How do you add or remove family trust beneficiaries?

You can usually change the beneficiaries of a family trust, but only through the powers your deed gives you. Here’s the process we’d follow.

1. Read the variation clause. Find out who can amend the deed (the trustee, the appointor, or both together) and whether anything is off limits, such as adding the settlor.
2. Check the family group. If the trust has an FTE, adding someone outside the test individual’s family won’t make distributions to them tax-safe, even if the deed now allows it.
3. Test for resettlement. Small changes are fine. Changes to the core of the trust, such as its vesting date or the fundamental class of beneficiaries, need advice first.
4. Sign it as a deed. Use a deed of variation executed by the right parties, and pay any state stamp duty that applies.
5. Tell your accountant before 30 June. Distribution resolutions must be made by the end of the financial year, and they can only go to people the deed covered at that point.

Removing someone works the same way, either through a variation or an exclusion clause. A beneficiary can also disclaim their interest themselves, for a single year or permanently.

Family trust beneficiary checklist

Got your deed handy? Run through this list with your accountant once a year.

• Does the trust have a family trust election, and who is the test individual?
• Has every distribution in recent years gone to someone inside that person’s family group?
• Is the settlor excluded from benefiting?
• If the trust holds property, does the deed permanently exclude foreign persons?
• Do any companies or other trusts receiving distributions have interposed entity elections where needed?
• Does each beneficiary actually receive the money resolved to them?
• Is it clear who becomes appointor if the current one dies or loses capacity?

If you’re starting from scratch, our guide on how to set up a family trust walks through every step, and the discretionary trust deed template lets you build one yourself.

Frequently asked questions

Who can be a beneficiary of a family trust in Australia?

Anyone the trust deed describes, usually the founder’s spouse, children, grandchildren, parents, siblings, nieces, nephews and family-controlled companies and trusts. Once a family trust election is made, distributions need to stay within the nominated person’s family group or 47% tax applies.

Can a trustee be a beneficiary of a family trust?

Yes, and it’s common. The only problem is a sole trustee who is also the sole beneficiary, because the legal and beneficial ownership merge and the trust ends. A second beneficiary, second trustee or corporate trustee fixes it.

Can a company be a beneficiary of a trust?

Yes, if the deed allows it. For a family trust, the company needs to be inside the family group, usually through family ownership or an interposed entity election. Unpaid distributions to the company can trigger Division 7A.

What is a primary beneficiary of a trust?

A primary beneficiary is someone named directly in the trust deed’s schedule, often the person the trust was set up for and their spouse. General beneficiaries are then defined by their relationship to the primary group, such as their children or companies they control.

Can a family trust have a sole beneficiary?

A deed can name one beneficiary, but a discretionary trust with one beneficiary has nothing to be discretionary about. If that person is also the sole trustee, the trust fails entirely. Most family trusts name a wide family class for this reason.

Can aunts, uncles or cousins be beneficiaries?

They can be named in a deed, but if the trust has a family trust election they sit outside the family group. Any distribution to them attracts family trust distribution tax at 47%.

Can the settlor be a beneficiary?

No. A settlor who can benefit risks the trust being taxed as their own property. That’s why an unrelated lawyer or accountant usually acts as settlor and is excluded in the deed.

Can you change the beneficiaries of a family trust?

Usually yes, through a deed of variation signed by whoever the deed authorises. Get advice before changing core terms, because a major change can resettle the trust and trigger capital gains tax or stamp duty.

Will the new 30% trust tax affect my family trust?

If it’s legislated as proposed, most discretionary family trusts will pay at least 30% on taxable income from 1 July 2028. Individual beneficiaries get a credit. Company beneficiaries don’t, which makes bucket companies far less attractive.

Get your family trust beneficiaries right from day one

If this feels like a lot, you’re not behind. Most people set up a family trust once and never look at the beneficiary clause again until something forces them to. Reading this far puts you ahead of plenty of trustees.

The simplest path is to have a lawyer draft the deed, act as settlor, and set up a corporate trustee in one go, so the beneficiary classes, exclusions and appointor succession are right before the first distribution. Set up your family trust with a Lawpath lawyer today.