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How To Use a Family Trust to Buy a Home

A family trust might make it possible for you to invest in real estate. They are complex financial structures, so you need to know what they are and how you can use them.


Many people have started using family trusts to set up the ownership structures for their investment properties. This gives them the ability to protect their assets and reduce their tax bills.

Whether this will work for you depends on several factors. Your income, combined with that of the trust’s other beneficiaries, plays a part. So too do the assets you place in the trust.

You’ll also need to consider the costs of managing the trust before you try to use it to secure any home loans. Let’s look at family trusts in more detail.

What Is a Family Trust?

Family trusts are financial structures. A trustee will manage the assets the trust holds on behalf of the trust’s beneficiaries. They’re simpler than most other trust structures, which has led to many investors using them to secure home loans.

No individual owns the assets in a family trust. Instead, they’re owned by the trust itself, with the trustee managing the distribution of any income the trust generates. This is done upon the conclusion of each financial year. Furthermore, the trustee can help the beneficiaries with any tax benefits the trust may provide.

The trust can borrow and invest in a similar way to an individual. However, all assets that require trust funds must be held in the trust.

How Do I Create a Family Trust?

You must complete four steps before you can set up a family trust:

  1. The first is the selection of a trustee and any beneficiaries you’ll attach to the trust;
  2. Secondly, you need to create a trust deed, which defines the trust’s function and how the trustee manages it. The trustee must sign this deed, after which the settler will place a small sum into the trust. Your settler should be someone who has no family ties with any of the trust’s beneficiaries;
  3. After that, you will need to gain approval for the trust deed from your local state government. Upon approval, the deed receives the government’s stamp;
  4. Finally, you must get an Australian Business Number (ABN) for the trust and create a bank account that you will use to conduct the trust’s business.

You can complete many of these steps online but it’s best to work with a financial professional to ensure there are no mix-ups during the setup period.

What Are the Benefits?

Family trusts offer three key benefits to their beneficiaries. These are:

  • Asset Protection: Because the trust holds all assets you place in it, said assets are not at risk if you encounter personal financial issues. The same goes for all of the trust’s beneficiaries. Creditors cannot go after the trust’s assets, even in the case of a personal default or bankruptcy;
  • Sharing Profits: You can divide the income the trust earns among its beneficiaries each year. This structure allows you to manage your tax obligations. Additionally, you only have to pay 50% of the Capital Gains Tax (CGT) on any property the trust has held for more than 12 months. However, the trust may not take advantage of negative gearing, even if one of its properties loses money;
  • Estate Planning: A family trust may allow you to pass property from one generation to the next without the expenses that are usually attached to estate planning. For example, the trust may help you to avoid stamp duty. Furthermore, the trust deed documents the division of the trust’s assets if one of the beneficiaries passes away. This prevents any infighting from happening.

Should I Invest in Real Estate Using a Family Trust?

While a family trust can help you save money on your tax bill, there are some other issues to keep in mind.

For one, you will not share losses in the trust. This means you need to create a proper structure for any home loans you take out using the trust, so you receive the appropriate tax benefits.

Moreover, the majority of lenders ask all trust beneficiaries over the age of 18 to act as guarantors on any home loans taken out using the trust.

This means you need to consider the circumstances of the trust’s beneficiaries, as well as your own. Speak to a professional to find out if a family trust is suitable for your situation.

What to Do Next

Family trusts offer several opportunities for investors. However, you need to manage them carefully to enjoy all the benefits they provide. Before you look into setting up a family trust:

It’s important to note that the information we give here is general in nature – no matter how helpful or relatable you find our articles. Even if it seems like we’re writing about you, it’s not personal or financial advice. That’s why you should always ask a professional before making any life-changing decisions.

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

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