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Will Planning in 2026: Why Testamentary Trusts Are Back in Focus
A quiet measure in the Federal Government’s 2026-27 Budget could have real consequences for many Australian families who use “family trusts” (also called discretionary trusts). From 1 July 2028, the Government has announced a 30% minimum tax on discretionary trusts. Traditionally, these trusts have often worked as a “flow through” structure: the trust earns income […]
Will Planning in 2026: Why Testamentary Trusts Are Back in Focus
A quiet measure in the Federal Government’s 2026-27 Budget could have real consequences for many Australian families who use “family trusts” (also called discretionary trusts).
From 1 July 2028, the Government has announced a 30% minimum tax on discretionary trusts. Traditionally, these trusts have often worked as a “flow through” structure: the trust earns income and the trustee distributes it to beneficiaries, who then pay tax at their own marginal rates. This has allowed families (legitimately) to spread income among family members, including those on lower tax rates.
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Under the proposed reform, trustees will need to ensure at least 30% tax is paid on the trust’s taxable income. Beneficiaries (other than companies) will still receive credits for tax already paid by the trust, but if a beneficiary’s own tax rate is below 30%, they may not receive the full benefit of those credits. In practical terms, this may reduce the flexibility and tax effectiveness that made discretionary trusts so popular.
There is, however, a standout exception that is changing estate planning conversations. In a Prime Ministerial media release dated 18 June 2026, the Government clarified that income from testamentary trusts (trusts created under a will and activated on death) will be exempt from the minimum tax, including future testamentary trusts.
Beyond tax, testamentary trusts can offer added protection for inheritances by helping to shelter assets from relationship breakdowns, creditor claims, and risky spending decisions, while still allowing families to manage distributions over time.
With these changes on the horizon, it is worth reviewing your Will and broader estate plan to ensure your assets will pass in the most appropriate way for your family—balancing control, protection and tax outcomes.
For a review of your Will and other estate planning documents, contact Kauri Burgess at Aylward Game Solicitors, 2/20 Grice Avenue, Paradise Point QLD 4216.
Frequently Asked a Questions
1. What is the disadvantage of a testamentary trust?
Generally, testamentary trusts add ongoing administration — separate tax returns, trustee duties, and running costs — which can outweigh the benefit for smaller or simpler estates. This would need separate content if you want it covered.
2. Why would someone use a testamentary trust?
From 1 July 2028, income from ordinary family trusts faces a 30% minimum tax, but testamentary trusts are exempt. Beyond tax, they protect inheritances from relationship breakdowns, creditor claims, and risky spending, while letting families manage distributions over time.
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3. What is the purpose of a testamentary trust?
A testamentary trust is created under a will and activated on death. Its purpose is to hold and manage inherited assets on behalf of beneficiaries, rather than distributing them outright—offering tax exemption from the new minimum tax and protection from external risks.
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