How to Do CDD on a Trust: Family, Discretionary, Unit and SMSF Trusts Explained

Why Trusts Are High Risk Under Tranche 2

Trusts are a standard part of Australian property transactions. Family trusts buying investment properties, developers using unit trusts for project SPVs, SMSFs purchasing commercial premises — these are everyday scenarios for most agents and conveyancers.

But AUSTRAC's National Risk Assessment specifically identifies discretionary trusts as high risk for ML/TF. Why?

• Beneficial ownership is obscured. In a discretionary trust, the trustee decides who gets what. Beneficiaries can change without any external record.
• Multiple layers of control. Trustee, settlor, appointor, guardian — different people can control different aspects of the trust.
• Easy to create. Setting up a trust in Australia is straightforward, making them accessible to legitimate businesses and criminal enterprises alike.
• Common in property. Because trusts are so normal in property transactions, they don't automatically attract suspicion — which is exactly what makes them useful for laundering.

This doesn't mean every trust transaction is suspicious. Most are entirely legitimate. But AUSTRAC expects you to apply Enhanced Due Diligence for trust structures and verify who actually controls the entity.

What CDD Information You Need for ANY Trust

Regardless of trust type, you must collect and verify the following:

CDD for Family/Discretionary Trusts

Family trusts (which are almost always discretionary trusts) are the most common trust type in Australian property. They're also the highest risk from an AML perspective.

What you must identify:

• Trustee — verify identity (individual) or conduct company CDD (corporate trustee)
• Settlor — verify identity. Often this was a family lawyer or accountant who contributed a nominal amount ($10) to establish the trust
• Appointor — verify identity. The appointor can replace the trustee and is often the real controller. If no appointor, identify who has this power
• Classes of beneficiaries — in a discretionary trust, you can't list every possible beneficiary (the class is often very broad). Document the classes defined in the trust deed (e.g., "children and grandchildren of the settlor")
• Any beneficiary who has received or is expected to receive a material benefit from the property transaction

Risk assessment: Discretionary trusts should be rated high risk by default, unless your risk assessment specifically justifies a lower rating. This means Enhanced CDD is likely required — deeper verification, source of funds assessment, and more frequent monitoring.

CDD for Unit Trusts

Unit trusts are common in commercial property and development. They're structured more like companies — unitholders have defined interests rather than discretionary entitlements.

What you must identify:

• Trustee — verify identity or conduct company CDD
• Settlor — verify identity
• Unitholders holding 25% or more — these are your beneficial owners. Verify their identity
• If no unitholder holds 25%+, identify the unitholders with the largest interests and apply a risk-based approach
• Any person who exercises effective control over the trust (may be different from the largest unitholder)

Unit trusts are generally lower risk than discretionary trusts because ownership is more transparent. But complex unit trust structures with multiple sub-trusts as unitholders should be treated as higher risk.

CDD for Self-Managed Super Funds (SMSFs)

SMSFs purchasing property are increasingly common, especially for commercial premises. SMSFs are regulated by the ATO, which provides some additional oversight — but you still need to conduct CDD.

What you must identify:

• Individual trustees — verify identity of each trustee. Or if corporate trustee, conduct company CDD on the trustee company and verify the directors
• Members — verify identity of all SMSF members (maximum 6 under current rules)
• Settlor — verify identity
• ATO registration — confirm the SMSF is registered with the Australian Taxation Office. Cross-check ABN on the ABR

SMSFs have regulatory oversight from the ATO, which can be a mitigating factor in your risk assessment. However, SMSFs using limited recourse borrowing arrangements (LRBAs) to purchase property add complexity and may warrant a higher risk rating.

CDD for Bare Trusts and Nominee Structures

Bare trusts and nominee arrangements are common in property — a nominee holds legal title while the beneficial owner is someone else. This is a high-risk structure because the person on the title is not the person who benefits from the property.

What you must identify:

• The nominee/bare trustee — verify their identity
• The underlying principal/beneficial owner — this is the critical piece. You must identify and verify who actually benefits from the property
• The basis for the arrangement — why is a nominee being used? Is there a legitimate commercial reason?

You cannot just verify the nominee. The entire point of CDD is to identify who actually owns and benefits from the property. If a nominee arrangement is designed to obscure beneficial ownership without a clear legitimate purpose, that's a red flag.

Common Mistakes in Trust CDD

Trust CDD Checklist

Frequently Asked Questions

Why are discretionary trusts rated high risk by AUSTRAC?

Because the trustee has discretion over who receives benefits, beneficial ownership can shift without any visible change. This makes it harder to identify who actually controls the assets, creating ML/TF risk.

Do I need to see the full trust deed?

You need enough to identify the trust type, trustee, settlor, appointor, and beneficiaries. This usually means the trust deed or a certified extract. A one-page summary from an accountant is not sufficient.

What's the beneficial ownership threshold for unit trusts?

25% of units. Unitholders holding 25% or more are considered beneficial owners and must be identified and verified. If no one holds 25%+, identify those with the largest interests.

How do I handle a trust buying at auction?

You have 20 business days after auction for delayed CDD on the buyer. But you must identify the trust structure, trustee, and beneficial owners within that timeframe. Complete vendor trust CDD before the auction.

What if the trust has a corporate trustee?

You need CDD on both the trust (settlor, appointor, beneficiaries) AND the corporate trustee (company, directors, 25%+ shareholders). Two layers of verification.

Disclaimer: This article provides general information about CDD on trusts and does not constitute legal advice. Trust law varies by state. You should confirm your specific obligations with AUSTRAC or a qualified legal adviser. AMLTranche helps streamline your compliance workflows alongside your professional advisers.