Why Testamentary Trusts Just Became One of the Most Important Estate Planning Tools in Australia

If you have a will that doesn’t include a testamentary trust, now is the time to talk to your solicitor. The Federal Government’s tax reform agenda — confirmed in the 2026–27 Budget and clarified further in a Prime Minister’s media release on 18 June 2026 — has fundamentally changed the planning landscape for families, business owners, and anyone with assets to pass on.

What’s Changed: The 30% Minimum Tax on Discretionary Trusts

In the 2026–27 Federal Budget, the Government announced it will introduce a 30% minimum tax on discretionary trusts from 1 July 2028. Under the existing rules, a discretionary (family) trust is a flow-through vehicle — it generally pays no tax itself, and income is taxed in the hands of whichever beneficiary it’s distributed to, at that person’s own marginal rate. That’s the mechanism that has allowed families to spread trust income across a spouse, adult children, or other family members on lower tax brackets, reducing the household’s overall tax bill.

From 1 July 2028, that changes. The trustee of a discretionary trust will be required to pay a minimum 30% tax on the trust’s taxable income, with no grandfathering for existing structures. Beneficiaries other than companies will still receive a credit for tax already paid by the trustee, but anyone whose marginal rate sits below 30% stands to lose the benefit of those excess credits — eroding the income-splitting advantage that has made family trusts so popular for decades.

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The Critical Carve-Out: Testamentary Trusts

This is where the Government’s most recent clarifications matter enormously. From the outset, the Budget papers signalled that the minimum tax was not intended to apply to testamentary trusts existing at the time of the announcement (12 May 2026). The Prime Minister’s 18 June 2026 media release builds directly on this, confirming that income from all types of testamentary trusts — including future discretionary testamentary trusts, not just those already in existence — will be exempt from the minimum tax, with further implementation detail to follow in consultation. The release also confirmed the Government will legislate these reforms directly in the Senate, rather than leaving the detail to legislative instruments, giving families and their advisers far greater certainty to plan around.

In other words: while ordinary discretionary (inter vivos) family trusts are about to lose much of their tax efficiency, testamentary discretionary trusts — trusts established under a will, taking effect on death — have effectively been carved out of the new regime entirely, now and into the future.

Why This Makes Testamentary Trusts More Important Than Ever

This isn’t a minor technical adjustment. It’s a structural shift that changes the calculus for almost every Australian with a will, a family business, or assets they intend to pass to the next generation. Three things now matter more than ever.

1. Taxation. With ordinary discretionary trusts facing a 30% minimum trustee tax from 2028, the concessional treatment of testamentary trusts — including the ability for minor beneficiaries to be taxed at adult marginal rates on trust income, rather than the punitive rates that normally apply to minors — becomes one of the few remaining legitimate avenues for flexible, tax-effective income distribution within a family group. A will drafted without a testamentary trust may leave beneficiaries paying meaningfully more tax than they need to, simply because the structure wasn’t there to use.
2. Asset protection. Testamentary trusts don’t just save tax — they protect inherited wealth from risks the beneficiary may face years after you’re gone. Assets held in a properly structured testamentary trust are generally shielded from a beneficiary’s:

• Family law claims — inheritance held in trust, rather than in a beneficiary’s personal name, is far harder for an ex-partner to claim a share of in a property settlement.
• Bankruptcy and creditor claims — if a beneficiary is sued, goes into business and fails, or becomes insolvent, assets properly held in a testamentary trust generally sit outside the pool available to creditors.
• Vulnerable beneficiaries and poor decision-making — a trust structure allows a trustee to manage and distribute assets responsibly for beneficiaries who may be young, financially inexperienced, or otherwise vulnerable.

3. Certainty. With the Government confirming these reforms will be legislated directly rather than left to regulation, and with testamentary trusts now squarely protected, families finally have a stable foundation to plan against — rather than guessing at rules that could shift again before 2028.

Put simply: the protections that have always made testamentary trusts attractive — tax flexibility and asset protection — are no longer just “nice to have.” With ordinary family trusts losing ground, a testamentary trust may soon be the most effective structure left for passing on wealth in a tax-efficient, protected way.

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What This Means for Your Will

If your current will leaves assets to beneficiaries outright, or relies on an old-style discretionary family trust to manage wealth across generations, it’s worth revisiting now — before 2028, and before life events (separation, business risk, a beneficiary’s circumstances) make the need more urgent. The right testamentary trust structure, properly drafted, can mean the difference between an inheritance that’s exposed to tax, an ex-partner, or creditors, and one that’s protected for the people you intended to benefit.

How Aylward Game Solicitors Can Help

At Aylward Game Solicitors, our Wills and Estates team understands how these reforms intersect with real families and real businesses across Queensland. We can review your existing will, advise on whether a testamentary trust structure is right for your circumstances, and draft documents that take full advantage of the tax and asset protection benefits now available — while keeping pace with the Government’s reforms as further detail is released. If you’d like to discuss your will or estate plan in light of these changes, contact Aylward Game Solicitors today to arrange a consultation.

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This article is general information only and does not constitute legal or financial advice. The measures discussed are not yet law and remain subject to further consultation and legislation. Please contact Aylward Game Solicitors for advice tailored to your individual circumstances.