Are Family Trusts Still Worth It After the 2028 Tax Changes?

 Family trusts have long been a popular structure for Australians looking to manage investment income and distribute it efficiently among family members. However, proposed tax changes from 2028 could significantly change how attractive family trusts are for some investors. 

While the changes are not yet legislated, they are important enough for anyone with a family trust to start reviewing their structure and considering whether it will continue to work effectively. 

What Is Changing for Family Trusts? 

One of the key benefits of a family trust has traditionally been the ability to distribute income to beneficiaries who may be paying tax at a lower rate. 

For example, a family trust might hold $2 million in investments generating around $80,000 a year in dividends. That income could potentially be distributed between a husband and wife, with $40,000 going to each, alongside franking credits. 

Under the proposed changes, this type of arrangement could look very different. 

From 2028, certain income distributed through family trusts could be subject to a minimum 30% tax rate. The trust would be required to pay the tax, although available franking credits may help offset the amount payable. 

Another important change relates to tax credits. Under the proposed rules, these could become non-refundable. This means that if the available tax credits are greater than the tax otherwise payable, the excess may not be refunded. 

For retirees who have historically benefited from receiving refunds from franking credits, this could make a family trust considerably less attractive. 

Does This Mean Family Trusts Are No Longer Worthwhile? 

Not necessarily. 

Family trusts are not simply going to become obsolete. As the transcript highlights, they may still have advantages in situations where beneficiaries are already paying tax at or above the proposed 30% rate. 

The impact will depend heavily on the individual circumstances of the trust, its investments, beneficiaries and the amount of income being generated. 

For some families, however, the proposed changes could mean that the family trust is no longer the most tax-effective structure. 

That makes a review particularly important. 

What Alternatives Could Be Considered? 

If a family trust becomes less attractive, there are several alternative structures that could potentially be considered. 

Holding Investments Jointly - If the same investments were instead held jointly between two individuals, the tax treatment could be different. The transcript specifically highlights that franking credits associated with jointly held shares could continue to be received by the individuals. 

Using a Company- A company may also provide an alternative structure in some circumstances. The transcript notes that where a company pays dividends to individuals, the associated franking credits may be available to them. However, moving investments from a trust to a company is not something that should be done without considering the tax and legal consequences. 

Investment Bonds- Investment bonds may also have a role, particularly where estate planning is an important consideration. They could provide another way of holding wealth outside a family trust depending on the investor's circumstances and objectives. 

Superannuation- For retirees and pre-retirees, superannuation remains an important consideration. As highlighted in the transcript, super can offer significantly lower tax rates in the right circumstances, making it an important part of an overall investment and retirement strategy. 

Should You Do Anything Now? 

The proposed changes are not yet legislated, and the transcript makes it clear that there is no need to immediately restructure a family trust based on proposed legislation. 

Instead, the key message is to review your structure before the changes take effect. 

This is particularly relevant if your family trust: 

• Holds a significant portfolio of shares or other investments 

• Relies on distributing income between family members 

• Receives substantial franking credits 

• Is used to hold business interests 

• Holds property, shares or cash generating investment income 

• Forms part of your retirement or estate planning strategy 

The right response will be different for every family. In some cases, keeping the existing trust may still make sense. In others, restructuring into joint ownership, a company, an investment bond or another structure could potentially be more appropriate. 

The Bottom Line 

The proposed 2028 tax changes do not mean family trusts are finished. They do, however, mean that the reasons for having one may need to be reconsidered. 

A structure that has worked effectively for years may not provide the same tax outcomes under the proposed rules, particularly for retirees relying on franked dividends and refundable tax credits. 

The important thing is not to make a rushed decision. Instead, use the lead-up to 2028 as an opportunity to review how your family trust fits into your broader financial, investment, retirement and estate planning strategy. 

As always, proposed tax changes can evolve before they become law. Before making any changes, speak with a qualified accountant and financial adviser who can assess your individual circumstances and determine whether your current structure remains appropriate.