Many of the families we advise have children or grandchildren living in Singapore, Hong Kong, Shanghai, London or elsewhere. Parents naturally want everyone included in their Will. Increasingly, though, they are told by their lawyer or accountant that the Will or the testamentary trust should contain a “foreign beneficiary exclusion clause”, which means wording that stops any foreign person from ever benefiting.
This article explains why these clauses exist, what they protect against, how the foreign investment rules deal with an overseas beneficiary who inherits a home, and how to weigh up the choices when your family is spread across countries.
Why discretionary trusts are treated as “foreign”
A testamentary trust is a trust created by a Will. Most are discretionary: the trustee decides each year which family members receive income or capital. Because any beneficiary might receive the whole of the trust property, state revenue offices look at every potential beneficiary, not only those who actually receive distributions.
If even one potential beneficiary is a foreign person, the trust can be treated as foreign for state tax purposes. The definition of “foreign person” is broad. It can include an Australian citizen who is not ordinarily resident in Australia, a permanent resident who lives overseas, and a company controlled from overseas. A daughter working in Singapore could make the whole trust “foreign” without anyone intending it.
New South Wales: surcharge purchaser duty and surcharge land tax
NSW charges surcharge purchaser duty when a foreign person buys residential land, and surcharge land tax each year on residential land owned by a foreign person. Both are paid on top of ordinary duty and land tax.
For a discretionary trust to escape these surcharges in NSW, the trust terms must meet two requirements before the liability arises:
- No foreign beneficiary: no potential beneficiary may be a foreign person; and
- No amendment: the trust terms must not be capable of being amended so that a foreign person could become a beneficiary.
For testamentary trusts, NSW applies transitional rules. Trusts created under Wills or codicils signed on or before 31 December 2020 are generally not treated as foreign merely because a foreign person could benefit, provided the deceased was not a foreign person. For Wills or codicils signed on or after 1 January 2021, a testamentary trust that acquires NSW residential land can be liable for the surcharge unless the trust terms satisfy both requirements above. Revenue NSW has also said that a general clause preventing distributions to foreign persons may not be enough where named beneficiaries could still change the trust, so drafting matters.
Victoria: foreign purchaser additional duty and the absentee owner surcharge
Victoria has a similar pair of taxes: foreign purchaser additional duty on the purchase of residential property, and the absentee owner surcharge, an extra land tax on land owned by absentee persons and absentee trusts.
The State Revenue Office treats a discretionary trust as a foreign trust for duty purposes where a foreign person can benefit, and a discretionary trust can be an absentee trust for land tax where an absentee person is among its beneficiaries. The Victorian rules on how an exclusion must be worded and when it must be in place differ from the NSW rules, and they are applied to the terms of the particular trust. The surcharge is assessed each year, so a trust that owns Victorian land can be affected for as long as an absentee beneficiary remains eligible to benefit.
The foreign investment rules when an overseas beneficiary inherits a home
State taxes are only half the picture. The Commonwealth foreign investment framework, administered by the Treasury and the ATO, also applies to inheritances.
- Inheriting under a Will. Since 1 January 2021, acquiring an interest in Australian land under a Will is no longer automatically exempt. A foreign person who will receive residential land from an estate generally needs foreign investment approval, usually before the property is transferred to them at the end of the administration. Approval can come with conditions, such as a requirement to sell an established dwelling within a set time.
- Inheriting on intestacy. Where there is no valid Will, the property passes by operation of law under the statutory intestacy rules. The exemption for devolution by operation of law is generally understood to cover this, so the will and intestacy positions can differ.
- Executors and trustees. An executor holding property in that capacity generally does not need approval, because the executor does not take a beneficial interest.
Separately, the Government has banned foreign persons from buying established dwellings, subject to limited exceptions. The ban started on 1 April 2025. It was first announced for two years and has since been extended to 30 June 2029 (as at October 2026). The ban targets purchases. Official guidance does not deal specifically with inheritances, so an overseas beneficiary who is to receive an established home should get advice and, where needed, apply to the foreign investment regulator before the property is transferred, rather than assume approval will follow.
The trade-off when your children live overseas
An exclusion clause is not automatically right. It solves one problem by creating another.
- Benefits: the trust avoids surcharge duty and surcharge land tax.
- Costs: a child or grandchild living overseas cannot benefit from that trust, even if they return to Australia later, unless the clause is drafted to let them back in once they qualify. If the clause is irrevocable, it cannot easily be undone.
Common approaches for cross-border families include:
- leaving Australian residential property to beneficiaries who live in Australia, and balancing the gift with other assets, cash or overseas property for children abroad;
- creating separate testamentary trusts, one with an exclusion clause to hold Australian residential land and one without for other assets;
- giving the executor power to decide at the time of death whether to create an excluded trust, depending on where family members then live;
- making a separate Will in the country where overseas children live, so each family member receives assets that suit their residence.
Practical checklist
- List where each child and grandchild lives and their citizenship and visa status.
- Identify which assets are Australian residential land, and in which state.
- Check whether your existing Will was signed before or after 1 January 2021 and whether it creates discretionary trusts.
- Consider whether an overseas beneficiary may need foreign investment approval, and whether a sale is more practical than a transfer.
- Review the Will whenever a family member moves overseas or returns.
Frequently asked questions
What is a foreign beneficiary exclusion clause?
It is wording in a Will or trust that prevents any foreign person from being a beneficiary and stops the trust from being changed to let them in. It stops the trust being treated as foreign for state surcharges.
Does foreign beneficiary land tax apply to a deceased estate?
Property held by an executor during administration is treated differently from property held in a continuing testamentary trust, and the rules vary between states. Once property sits in a discretionary testamentary trust with a potential foreign beneficiary, surcharge land tax can apply each year. Get advice before the estate is finalised.
Can my child who lives overseas still inherit my house in Australia?
Yes, but if they are a foreign person they will usually need foreign investment approval when receiving it under a Will, and conditions may apply. Many families find it simpler to sell the property or to balance gifts so that overseas children receive other assets.
Should every Will have a foreign beneficiary exclusion clause?
No. It depends on whether a trust will hold Australian residential land and whether family members live overseas or may move. For some families the cost of excluding a child outweighs the tax saved.
How Chua Tan Associates can help
We prepare Wills and testamentary trusts for families with members in Australia and across Asia, and we review existing Wills to see whether they expose a family home to surcharge duty, surcharge land tax or foreign investment conditions. We can work with local lawyers where a separate overseas Will is needed, our notary public can prepare documents for use abroad, and we explain the options in English, Mandarin and Cantonese so that every family member understands the choices being made.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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