Family Trusts Under Tranche 2: What 1 Million+ Australian Trusts Mean for AML Obligations

Recent reporting highlights that more than one million family trusts operate in Australia, a figure supported by ATO data and widely cited in investment commentary. With trusts generating close to $489.5 billion in total business income in the 2023 financial year, they represent one of the largest and most lightly scrutinised financial structures in Australia’s economy.

Until now, these trusts have existed in a regulatory blind spot for anti‑money laundering and counter‑terrorism financing (AML/CTF) oversight—but Tranche 2 reforms are set to change that.

This article breaks down what family trusts are, why they matter in the Tranche 2 context, and what real estate agents, accountants, lawyers, and trust administrators should start preparing for.

1. What the reported trust boom tells us

Public analysis notes that family trusts are widely used for:

• tax planning;

• asset protection;

• flexible income distribution; and

• intergenerational wealth management.

The ATO also outlines that trusts vary significantly, from simple discretionary structures to those requiring formal Family Trust Elections, enabling access to certain concessions and tax treatments.

These structures offer flexibility—and that flexibility is precisely why they pose AML/CTF risk when unregulated.

2. Why family trusts are squarely in the sights of Tranche 2

a) High‑risk structural features

Family trusts can obscure:

• ultimate beneficial ownership (UBO),

• source of funds,

• control rights, and

• distribution pathways.

The trust deed, appointor powers, corporate trustees, and layered beneficiary classes can make determining the “real” controller extremely challenging. This is well‑recognised globally by FATF.

b) Tranche 2 will require trust-related gatekeeper professions to verify:

• trustee identity,

• beneficiaries (including minors and contingent beneficiaries),

• appointors and controllers,

• settlors (in line with FATF standards), and

• the purpose and anticipated nature of trust activity.

After the reforms go live in just over 5 months time, AML obligations will fall heavily on:

• lawyers drafting or advising on trusts;

• accountants administering or structuring trusts;

• real estate agents dealing with trust‑held property;

• corporate service providers and trust management businesses.

3. Trusts & real estate: the Tranche 2 flash‑point

Family trusts are commonly used to purchase residential and commercial property. With more than one million trusts operating, the intersection between trusts and real estate transactions is vast.

Under Tranche 2, a trust purchasing a property will trigger:

• full KYC on the trust (trust deed, role-holders, beneficiaries);

• source‑of‑funds checks on contributions and distributions;

• ongoing monitoring if the trust continues to transact.

This is especially relevant because real estate is globally recognised as a vehicle for laundering illicit funds—often through opaque trust structures.

4. Risks the government is trying to close

Tranche 2 aims to mitigate risks including:

• layered ownership via corporate trustees;

• income distribution to obscure funds flow;

• property holdings shielding criminals from asset tracing;

• use of trusts for tax evasion or cross‑border fund transfers;

• “family group” definitions that make it harder to identify beneficial owners.

Given the ATO already acknowledges the complexity of trust elections, loss provisions, and interposed entity rules, the AML/CTF challenge is substantial.  

5. What trustees and advisers should start doing now

a) Prepare for full trust transparency

Trustees should expect to provide:

• certified trust deeds;

• identification of all role‑holders;

• source‑of‑funds documentation;

• beneficiary and UBO disclosures.

b) Accountants & lawyers need updated onboarding processes

You will be expected to:

• collect CDD/KYC documents before providing trust-related services;

• build risk‑scoring for high‑risk trust structures;

• reassess how you handle complex or foreign‑linked trusts.

c) Real estate agents must be Tranche‑2 ready

When a trust buys or sells property:

• trust KYC is mandatory;

• controllers must be identified;

• suspicious distribution patterns must be monitored and reported.

d) Trust administrators should implement AML policies

This includes AML/CTF programs, ongoing monitoring, staff training, and suspicious matter reporting (SMRs).

6. What this means for the 1 million+ Australians with family trusts

Most trustees have never had to undergo AML checks. That will soon change.

For ordinary families using trusts for tax and asset planning, this means:

• more paperwork;

• clearer documentation of wealth sources;

• greater visibility into distributions;

• compliance obligations when dealing with Tranche‑2 regulated professionals.

For high‑risk clients, complex structures, or foreign‑linked beneficiaries, scrutiny will increase substantially.

7. Final thoughts: The era of anonymous trust structures is ending

The widely reported scale of Australian trust usage—more than one million structures—illustrates why government reform has become urgent.

Tranche 2 will not eliminate family trusts, nor is it designed to. But it will require the industries surrounding them—real estate, accounting, legal, and trust administration—to bring these vehicles into the light.

If you rely on trusts or advise clients who do, now is the time to prepare for AML/CTF compliance.

👉 Book a Tranche 2 Readiness Session with AML Advisers today and ensure your trust structures, onboarding processes, and risk assessments are compliant from day one.