A testamentary trust is a trust created by your Will, which comes into effect when you die. Many Australian Wills leave assets to a discretionary testamentary trust rather than directly to children, to protect the inheritance and to allow income to be shared among family members. The proposed 30% minimum tax on discretionary trusts has left many people asking whether their Will still works.
Where things stand
When the 2026–27 Budget was announced, it appeared that only testamentary trusts already in existence would be protected. That caused concern for anyone whose Will had been signed but who had not yet died.
The government has since confirmed that deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will be excluded from the minimum tax. The exclusion is limited to income from assets that came from the deceased’s estate. For testamentary trusts established on or after 1 July 2028, the exclusion is expected to apply only where the trust can benefit individuals and tax-exempt bodies, not companies or other trusts.
Legislation was introduced into Parliament on 14 October 2026. It is not yet law, and the details may change.
What this means in practice
- Testamentary trusts remain valuable. Asset protection, protecting vulnerable or young beneficiaries, and keeping inheritances separate from a child’s marriage are not affected by the tax changes.
- Who can benefit matters. Many older Wills allow a testamentary trust to benefit family companies and other trusts. That wide class may cost the trust its exclusion in future.
- Adding new money may matter. The exclusion is tied to assets from the deceased’s estate. Beneficiaries who later add their own money to the trust may find that income is taxed differently.
- Fixed testamentary trusts are treated differently from discretionary ones and are excluded from the minimum tax as fixed trusts.
Families with members overseas
Asian families often have children or grandchildren living outside Australia. A testamentary trust with overseas beneficiaries raises separate questions: Australian withholding and residency rules, and the tax rules of the country where the beneficiary lives. Some countries, including mainland China, now tax residents who benefit from foreign trusts. Those issues should be considered when choosing the beneficiaries and trustees.
Should you change your Will now?
For most people, the sensible step is a review rather than an immediate rewrite. Check whether your Will contains a testamentary trust, who can benefit from it, and whether it still suits your family. Once the legislation is finalised, any changes can be made with certainty.
Chua Tan Associates prepares Wills and testamentary trusts for families in every Australian state and territory, including families with members and assets overseas. 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. The measures described are proposals and may change before they become law.
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