17/05/2026
Since the delivery of the Federal Budget this past week, we have received a significant number of enquiries from clients concerned about the proposed introduction of a minimum 30% tax on distributions from discretionary trusts, including many testamentary trusts, from 1 July 2028.
At this stage, there is still a great deal we do not know. Draft legislation has not yet been released, and many important questions remain unanswered, particularly around how the proposed rules may apply to testamentary trusts established for genuine estate planning and asset protection purposes.
For now, our advice to clients is this: do not panic, but do not ignore the developments either.
Testamentary trusts are not simply “tax structures”. They are protective structures. For many families, they exist to protect vulnerable beneficiaries, safeguard inheritances from bankruptcy and family law risk, provide oversight where beneficiaries may struggle with addiction or financial judgment, and create flexibility to respond to changing circumstances over time.
A number of clients have asked us how to begin thinking about whether their current testamentary trust arrangements may ultimately require review. Whilst we are still awaiting detail, the attached flow chart provides a simple high-level framework for approaching the issue.
At a very broad level, the first question is: Why was the testamentary trust included in the Will in the first place?
If the primary driver was asset protection, there may ultimately be little reason to make significant changes. The non-tax protective benefits of testamentary trusts remain extremely important.
If, however, the trust was included primarily for tax planning reasons, and candidly, in our experience, this is rarely the sole driver, then the structure may warrant review.
The next consideration is flexibility. Many wills, including those that incorporate testamentary trusts, are drafted so beneficiaries can choose whether assets pass into a testamentary trust or are received personally. That flexibility may become increasingly valuable depending on how the legislation develops. Unless the willmaker has cause to remove the beneficiary's choice in this regard, our testamentary trusts are generally drafted with this option available.
Finally, the likely income position of beneficiaries matters. Where beneficiaries are already earning $45,000 or more per annum, the practical impact of the proposed changes may be less significant.
The most important point at present is this: if you have testamentary trusts in your will, the asset protection they provide has not been eroded by the budget. As to the tax consequences, they remain uncertain until draft legislation is released.
What we do know, however, is that good succession planning remains one of the most important acts of protection and care we can put in place for ourselves and the people we love.
The law, tax system and financial landscape will continue to evolve. Thoughtful estate planning has always needed to evolve alongside it.
In our experience, the greatest risk is rarely that a plan is imperfect. It is having no plan at all.
Of course, if you are concerned about how these proposed changes may impact your existing estate plan, you're updating your estate plan and trying to work out what you should have in place, or your circumstances have changed since you last reviewed your estate plan, we encourage you to contact us for a review. Careful planning and informed advice remain the best protection in times of uncertainty.
