Family discretionary trusts buy about 12% of Victorian investment property. The structure can be tax-effective — distributions can be directed to lower-marginal-rate beneficiaries, and asset protection is stronger than personal ownership. But the contract-level mechanics are tricky: the wrong buyer name on the contract can void the transaction, lender requirements are stricter, and stamp duty treatment depends on the trust’s deed wording.
This guide covers the trust mechanics, who signs the contract, how lenders treat trust applications, and the special conditions every trust buyer should consider.
The structure — how a trust holds property
A discretionary trust has three roles:
- Trustee. The legal owner of the trust assets. Holds title to the property. Signs contracts, pays land tax, collects rent. Usually a corporate trustee for liability protection.
- Beneficiaries.The class of people who can receive distributions. Typically family members and related entities. Beneficiaries don’t hold property directly.
- Appointor. The person with power to appoint or remove the trustee. Usually the patriarch/matriarch.
The trustee is the registered proprietor on title. The trust relationship is “hidden” from the title — the title simply shows the trustee company’s name (e.g. “ABC Pty Ltd ATF Smith Family Trust”).
Stamp duty treatment
| Trust type | Stamp duty treatment | Foreign purchaser duty |
|---|---|---|
| Australian discretionary trust (no foreign beneficiaries) | Standard rates | No |
| Discretionary trust with potential foreign beneficiaries | Standard rates | Yes — 8% additional |
| Fixed unit trust | Standard rates (look-through to unit holders) | If foreign unit holders |
| SMSF trust (LRBA) | Standard rates | No |
Critical point: discretionary trusts that could distribute to foreign beneficiaries are treated as foreign purchasers — even if no distribution to foreigners has ever occurred. The Duties Act 2000looks at the trust deed’s definition of beneficiaries, not the actual distribution history. If the deed includes any non-Australian person, the 8% Foreign Purchaser Additional Duty applies.
Trust deeds can be amended to exclude foreign beneficiaries before contract signing — typical cost: $1,500–$3,500 for the deed amendment.
Who signs the contract?
The trustee signs the contract, in their capacity as trustee for the trust. The buyer name on the contract should be:
“ABC Pty Ltd ACN 123 456 789 in its capacity as trustee for the Smith Family Trust”
Variations matter. Common errors:
- Signing in personal name (“John Smith”) instead of trustee capacity
- Omitting “ATF” (as trustee for) — creates ambiguity
- Wrong trustee company name (e.g. dormant company instead of active)
- Signing before the trust is formally established
Lender treatment
Lenders apply stricter requirements to trust borrowing:
- Trust deed review. Lender must approve the deed terms. Some lenders require specific clauses.
- Personal guarantees. The trustees and often beneficiaries are required to give personal guarantees. The asset-protection benefit of the trust structure is partially offset by personal exposure on the loan.
- Stricter lending criteria. Higher serviceability buffers, lower LVR caps (typically 80% maximum vs 95% personal), interest rate premium of 0.1–0.5%.
- Indemnity clauses.The trustee’s right of indemnity from trust assets must extend to repayment of the loan.
Land tax considerations
Trust-held property triggers land tax under the Land Tax Act 2005:
- Trust surcharge rates. Discretionary trusts face surcharge land tax rates — significantly higher than personal rates. The 2024 thresholds and rates apply at much lower levels.
- Aggregation. All trust-held property is aggregated for land tax purposes.
- Absentee owner surcharge. Applies to trusts with absent or foreign appointors / trustees.
- Vacant residential land tax. Applies to trust-held vacant property — see our VRLT guide.
Asset protection — the practical limit
Trust structures are often marketed as “asset protection.” The practical reality:
- Trust assets are protected from beneficiaries’ personal creditors
- Assets are NOT protected from lender if personal guarantees are given
- Protection from family law claims is limited
- Protection from bankruptcy trustees has narrow exceptions
Contract checks specific to trust purchases
- Trust deed reviewed and amended (foreign beneficiary exclusion if relevant)
- Trustee company current and properly named
- Contract names trustee in correct capacity
- Lender pre-approval secured before contract signing
- Stamp duty position confirmed (no foreign-purchaser surprise)
- Land tax projection done — including surcharge rates
- Personal guarantee implications understood
Ready to check your contract? Upload your Section 32 or Contract of Sale at precontractreview.com for a pre-contract check — typically in just a few minutes.