Is a Trust the Right Structure to Hold Your Company Shares? Let’s Break It Down

Let’s be honest: when someone mentions a “trust,” most people either think of rich kids or legal headaches. But when it comes to managing wealth and business structures in Australia, trusts can be an absolute gem, if you know how to use them right.

First, What Even Is a Trust?

A trust is basically the OG version of a group chat with rules. One person (the trustee) is in charge of the assets, but they’re managing it for the benefit of others (the beneficiaries). The trust deed? That’s the terms and conditions no one reads but absolutely should.

While a trust itself can’t legally own shares, the trustee can hold them on its behalf. So, picture it like this: the trustee's name is on the cake box, but the slices are reserved for the people the trust says should get a piece.

Whether you're running a family empire or just want to keep it in the fam, holding shares in a trust can be a smart strategy, just not without a few quirks.

✅ The Trusty Perks: Why People Love Using Trusts to Hold Shares

1. 🛡️ Asset Protection – Fort Knox, But Make It Legal

Trusts can put your assets in a financial forcefield. Whether it's from creditors, court orders, or messy family feuds, a trust can help keep your shares safer than a billionaire’s yacht during cyclone season.

• Creditor Protection: If your company hits stormy seas, shares held in a trust are generally out of reach for creditors.

• Family Law Buffer: In the case of a relationship breakdown, assets in a trust might avoid being sliced and diced in the asset split. (Just make sure your trust deed doesn’t read like a DIY disaster.)

2. 💸Tax Efficiency – Still Smart, But Not a Free-for-All

• Income Splitting : Once upon a time, trusts were the fairy godmothers of income splitting. You could sprinkle income across the fam, minimise your overall tax, and everyone lived happily ever after.

  🪄 But the ATO’s cracked down on those fairy tales.

  These days, income splitting comes with rules, scrutiny, and a traffic-light risk system that makes your red wine look pale.

  🚦What’s changed?

  • Section 100A now targets “reimbursement agreements” – that's when income is technically distributed to a low-tax-rate beneficiary (like your adult child), but the money actually benefits someone else (like... you).

  • TR 2022/4 tells us the ATO is not a fan of distributions that are all about reducing tax with no real benefit to the person receiving the income.

  • PCG 2022/2 sorts distributions into Green, Amber, and Red zones – red being the “audit incoming” category.

✅ What still works?

Trusts can still help manage tax – just more carefully.

• Genuine distributions to adult beneficiaries who actually receive and control the income are still allowed.

• You can allocate income based on legitimate reasons (e.g. to fund uni, a car, or living expenses) – not just to dodge tax.

• With solid documentation and good advice, trusts remain a flexible and powerful structure.

• CGT Management: Held shares for more than a year? You might score a 50% discount on capital gains tax. That's the kind of sale we like.

  
  

3. 🪦 Estate Planning – Avoiding Probate and Panic

Trusts let you call the shots even from beyond the grave (spooky, but efficient).

• Control Freak Friendly: Set conditions for distribution, like “only when my son stops spending like he’s on ‘The Bachelor’.”

• No Probate Drama: Shares in a trust can bypass the whole probate process, keeping your affairs private and out of courtroom soap operas.

  
  

4. 🔄 Succession Planning – Keeping It All in the Family

Trusts are like business continuity plans with benefits.

• Smooth Takeover: Want your kids to take the reins without legal chaos? A trust can help shares transfer seamlessly.

• Wealth That Lasts: Shares stay in the trust, not accidentally gifted to someone’s new “soulmate” (read: second spouse).

  
  

❌ Is there a downside? ... Possibly

1. 💸 Setup, Annual Costs & Complexity – It’s Not a $29.99 Online Template

Spoiler: this isn’t your average Canva download. Trusts require lawyers, accountants, and possibly a group therapy session (just kidding... mostly).

• Legal & Accounting Fees: That trust deed isn’t writing itself. And neither are the annual financials and tax work.

  
  

2. 🤷‍♂️ Loss of Direct Control – You're Not (Technically) the Boss

Once your shares are in the trust, you can’t just treat them like your personal piggy bank.

• Trustee Rules the Roost: The trustee has legal control and must act in the best interests of the beneficiaries, not you.

• Disagreements Happen: Think “Succession” but with fewer yachts. If beneficiaries and trustees butt heads, things can get sticky.

  
  

3. 🧾 Tax Traps – The ATO Is Always Watching

Yes, trusts can be tax-savvy. But mess it up and you might end up with a very unfun tax bill.

• Undistributed Income: If income isn’t distributed, it can be taxed at the top marginal rate (yep, that 45% sting).

• Division 7A Danger: Holding shares in a trust while your company lends money? Watch out, Division 7A could deem it a dividend and tax it like one. We've written a blog on this one, you can read it here

4. 🪢 Inflexibility – Harder to Untangle Than Christmas Lights

Once you’ve set up a trust, changing it isn’t just a click and drag.

• Irrevocability: Many trusts are locked in. Changes need to be prepared through variation of the trust deed, which costs time and money AND you have a set of rules you need to follow.

Should you trust a trust?

Despite the taxman-ian devil's sharper spotlight, trusts remain one of the most versatile, tax-smart, and future-ready structures out there. Used correctly, a well-managed discretionary trust gives you serious flexibility in how income is distributed, allowing you to adapt to changing family circumstances, cash flow needs, and tax positions, year after year.

Whether you’re looking to build generational wealth, protect your assets, or strategically plan for succession, trusts offer a solid legal foundation with a high degree of control (and a lower chance of chaos later on). Think of it as the Swiss Army knife of financial structures, compact, powerful, and ready for almost anything life throws your way.

With the right advice (and the right accountant 😉), a trust isn’t just a smart choice, it’s a legacy-building move that can help your family or biz thrive not just now, but for decades to come. Why not contact our team of oh so cool not nerdy at all experts to help. Drop us a line, and we'll guide you through this trust maze like pros.

Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice