Camden Professionals

Testamentary Trusts and the Proposed 30% Trust Tax

If you have a testamentary trust in your Will, or you’re thinking about including one, you may have heard about the Government’s proposal to introduce a 30% minimum tax on discretionary trust income.

The Government has announced that testamentary trusts are intended to be exempt from these proposed rules. However, the legislation has not yet been passed, and some important details are still being worked through by Treasury.

While there is no need to make rushed decisions, now is a good time to understand what has been proposed and what it could mean for your estate planning.

What Is a Testamentary Trust?

A testamentary trust is a trust created through your Will. It doesn’t exist while you’re alive, it only comes into effect after your death when your estate is administered.

Many Australians use testamentary trusts because they can:

Protect family assets.
Provide flexibility in how money is distributed.
Help protect beneficiaries from financial risk.
Assist with blended family arrangements.
Offer tax benefits, particularly where young children are beneficiaries.

For families with investment properties, businesses or significant wealth, testamentary trusts are often an important part of an estate plan.

What Is the Government Proposing?

In July 2026, Treasury released a consultation paper outlining how a proposed 30% minimum tax on discretionary trust income could operate from 1 July 2028.

The proposal aims to reduce the tax advantages of distributing trust income to adults on lower tax rates. Importantly, Treasury has confirmed that income from genuine testamentary trusts is expected to be exempt from the new tax.

However, the detailed rules have not yet been finalised and may change before any legislation is passed.

Why Are Testamentary Trusts Being Exempt?

The Government recognises that testamentary trusts are primarily used for estate planning, not for tax minimisation.

These trusts help families:

Look after children.
Protect vulnerable beneficiaries.
Manage inheritances over many years.
Preserve family wealth.

Because of these legitimate purposes, Treasury has indicated that testamentary trusts should continue receiving favourable treatment.

Is the Exemption Automatic?

Not necessarily. Treasury has proposed that certain conditions may apply before a testamentary trust qualifies for the exemption. These may include:

Assets must come from the deceased person’s estate

The trust should mainly contain assets inherited from the deceased. If unrelated assets are later transferred into the trust, those assets may not qualify for the exemption.

The trust must be genuinely established through a Will

Treasury is also considering whether there should be limits on very broad beneficiary classes that extend well beyond normal family estate planning. These issues are still being consulted on and have not yet been finalised.

Do Existing Wills Need to Be Changed?

For most people, no. Having an older Will does not automatically mean you will lose the exemption. In fact, Treasury has not yet decided exactly when a testamentary trust will be regarded as being “established.”

Possible dates being considered include:

The date the Will is signed.
The date of death.
The date probate is granted.
The date assets are transferred into the trust.

Until these rules are settled, there is generally no reason to rewrite your Will solely because of these proposals.

What Should People with Existing Testamentary Trust Wills Do?

If you already have a testamentary trust in your Will, the best approach is simply to review your estate plan as you normally would. Consider whether:

Your executor is still appropriate.
Your trustee appointments remain suitable.
Your beneficiaries are current.
Your family circumstances have changed.
Your assets have changed significantly.

If your Will already needs updating for personal reasons, your solicitor can also consider the proposed tax changes at the same time.

What Does This Mean for Executors?

If you are currently acting as an executor, your legal responsibilities do not change because of the consultation paper. However, if a testamentary trust will be created, you should seek professional advice before transferring estate assets into the trust, particularly if the new legislation is introduced before the estate is fully administered.

What Should Trustees Do?

Trustees of existing testamentary trusts do not need to make immediate changes.

Instead, they should continue to:

Keep accurate financial records.
Record where trust assets originated.
Maintain proper trust accounts.
Continue meeting annual tax and reporting obligations.

Good record keeping may become increasingly important if the proposed legislation is enacted.

Practical Tips

While nothing has changed yet, this is a good opportunity to:

Review your Will every few years.
Keep your estate planning documents up to date.
Review trustee and executor appointments.
Check your superannuation death benefit nominations.
Speak with your solicitor or accountant if your circumstances have changed.

Good estate planning is about protecting your family, not simply reducing tax.

Conclusion

The Government’s proposal to exempt testamentary trusts from the new 30% minimum trust tax provides welcome certainty for many Australian families. However, the proposal is still under consultation, and several important design details remain unresolved.

For now, there is no need to make major changes simply because of the announcement. Instead, continue reviewing your estate plan regularly and obtain professional legal and tax advice whenever your personal or financial circumstances change.

A well-prepared estate plan remains one of the best ways to protect your family and ensure your wishes are carried out.

Frequently Asked Questions

Is the 30% trust tax already law?

No. The proposal is still being considered by Treasury and has not yet been passed by Parliament.

Will testamentary trusts pay the new 30% tax?

The Government has stated that genuine testamentary trusts are intended to be exempt, although the final legislation has not yet been released.

Should I change my Will now?

For most people, no. Unless your Will already needs updating for other reasons, it is generally sensible to wait until the final legislation is known.

What is a testamentary trust?

A testamentary trust is a trust created under your Will that begins after your death and allows assets to be managed for your beneficiaries.

Why are testamentary trusts popular?

They provide flexibility, asset protection, tax advantages for some beneficiaries and greater control over how inheritances are managed.

Will an older Will still qualify?

Possibly. Treasury has not yet decided whether the relevant date will be when the Will was signed, when the person dies or another event.

Do trustees need to do anything now?

No immediate changes are required, but trustees should continue maintaining accurate records and seek advice if the law changes.

Should I review my estate plan?

Yes. Regardless of tax law changes, reviewing your Will every few years or after major life events is considered good estate planning practice.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

Why Your Will Matters as a Property Investor

Building a real estate portfolio takes years of hard work and sacrifice. But have you considered what will happen to your assets when you’re no longer here? Who would inherit your portfolio? Would you like to pass it on in equal shares?

A well-crafted will is not just a document for the wealthy or elderly; it’s a crucial tool for anyone with assets, particularly property investors. Do you need to consider asset protection strategies to protect your property investment?

Protect Your Legacy

Many Australians underestimate the importance of having an up-to-date will, especially those with significant property investments. Your will ensures that the fruits of your hard work and smart investments are distributed according to your wishes. Without a valid will, your estate — including your property investments — will be distributed according to state intestacy laws. This may not align with your intentions and could lead to unintended consequences for your beneficiaries.

Reduce Disputes and Taxes

A clear, legally binding will can help prevent family disputes over your assets. There have been countless cases where a lack of clear instructions in a will has led to costly and emotionally draining legal battles. This is particularly relevant for property investors, as real estate often represents a significant portion of one’s wealth. A well-structured will can also significantly reduce potential tax implications for your beneficiaries. With proper planning, you can ensure that your properties are transferred in the most tax-efficient manner possible.

Continuity of Property Management

If you have an extensive property portfolio, a will can provide instructions on how these investments should be managed after your passing. You can appoint a trusted executor or set up a testamentary trust to ensure your properties continue to be managed effectively. This can be crucial if you want your investments to continue generating income for your beneficiaries. For investors with beneficiaries who are not versed in property management, this alone can help keep everything running smoothly.

Address Complex Scenarios

Property investors often face unique estate planning challenges. If you own one or more properties with multiple investors or have made property investments through complex structures like trusts or privately owned companies, your will needs to address these scenarios specifically.

Regular Reviews Are Key

The property market is dynamic, and your portfolio is likely to change over time. But things in your life are also liable to change, with marital status being an obvious variable. As such, it’s crucial to review and update your will regularly for accuracy. Review your will every few years, or whenever there’s a significant change in your life or property portfolio. This ensures your will always reflects your current situation and wishes.

As a property investor, your will is much more than just a document. It’s a crucial part of your overall investment strategy, ensuring that what you’ve built continues to benefit those you care about, even when you’re no longer here to manage it yourself. Don’t leave the fate of your hard-earned investments to chance.

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What is a Testamentary Trust

A testamentary trust is a trust created by a Will. It is generally a discretionary trust – one where the Trustee has full discretion about who benefits, and to what extent, under the trust.

Why would I use a Testamentary Trust?

Testamentary trusts can make sure the inheritance reaches the intended recipients. An independent trustee can guarantee that vulnerable beneficiaries, such as very young children or the ill, incapacitated, unstable or disabled, will be provided for. Properly drafted, trusts can also guard against the often-divisive aftermath of divorce, and ensure that in the event of remarriage, assets will be passed on to the children or grandchildren of the testator.

Testamentary trusts are also a wise precaution if the beneficiaries may face legal action or bankruptcy, such as those in professions frequently subject to litigation, or high-risk business. This form of protection is often referred to as Asset Protection.

Can a Will-Maker Restrict the Terms of a Testamentary Trust?

The terms of testamentary trusts are contained in the Will. They can include restrictions on any or all of the beneficiaries or conversely, grant them extensive control. In effect, these can enable you as the Will-maker, or testator, to rule from the grave. It is up to the testator whether they vest control in the beneficiaries or in the hands of an independent trustee. Giving control to the beneficiaries allows a greater degree of flexibility; but a managerial trustee may be better if the beneficiaries are not able to control their own finances.

How do Testamentary Trusts Work?

Testamentary trusts are drafted to mimic the operation of a discretionary trust such as a family trust: the testamentary trust will have a broad range of discretionary beneficiaries, usually the members of an extended family.

The trustee of the testamentary trust selects from the class of beneficiaries which person or people who will receive a gift of trust income or trust capital. Until the trustee elects to distribute to a beneficiary, no person has a vested interest in the assets of the trust.

Careful drafting of the testamentary trust will ensure that the beneficiary selected, who becomes a beneficiary, only has an interest in the trust to the extent that the trustee has determined. The trustee of the testamentary trust may be the executor of the deceased estate or may be some other person, who will be appointed by the Will or pursuant to a formula contained in the Will.

Often the trustee will be the person to whom the Willmaker, but for the testamentary trust, would bequeath their assets or a good part of them.

Difference of Standard Will and Testamentary Trust Will

A Standard Will, in its simplest form, is a testamentary document confirming choice of executors, beneficiaries and testamentary wishes regarding the distribution of their estate. It does not, however, offer any asset protection or tax minimisation benefits.

A Testamentary Trust Will is a type of Will that establishes a Trust or Trusts upon the death of the will maker. This kind of Will is designed to protect the will makers assets as they will belong to the beneficiaries’ Trust rather than the individual. This enables flexibility for how capital and income generated by those assets is distributed. The Trust only becomes active once the will maker is deceased. The Trustees who decide how the income is distributed can also be beneficiaries of the Trust. However, the Trustees must act in accordance with the provisions set out in the Will regarding how the Trust is to be managed.

There are two commonly utilised types of Testamentary Trusts:

Discretionary Testamentary Trusts

where the Executor gives the beneficiary the option to take part or all of their inheritance via a Testamentary Trust. The primary beneficiary has the power to remove and appoint the trustee and they can appoint themselves to manage their inheritance inside the Trust.

Protective Testamentary Trusts

where a Beneficiary must take their inheritance via the Trust and does not have the option to appoint or remove trustees. This is useful where the beneficiary is not in a position to responsibly manage their inheritance due to age, disability or spendthrift tendencies and is often used when parents are leaving assets to their underage children.

The potential advantages of Testamentary Trusts include:

Asset Protection for the beneficiaries in the event of marriage or relationship breakdown (if the Trust is utilised effectively);
Asset Protection for vulnerable beneficiaries including spendthrift beneficiaries, disabled beneficiaries or beneficiaries with a drug, alcohol or gambling problem;
Asset Protection for “at risk” professionals or beneficiaries who may face claims from creditors or bankruptcy;
Protection of pension entitlements;
Income splitting advantages e.g. adult children, minors and/or other relatives on low incomes;
Income tax advantages for children under 18 (who are taxed at adult rates instead of penalty rates outside the Testamentary Trusts environment); and
Flexibility for the Trustee to exercise discretion about management and investment of capital and to take account of changing needs of beneficiaries.
Tax Advantages

If a beneficiary takes their inheritance in their personal name (via a Standard Will), they will pay tax on the income generated from their inheritance at their personal marginal tax rate.

There may be significant tax advantages in taking an inheritance through a Testamentary Trust, particularly where the beneficiary has:

a high personal marginal tax rate
a partner on a lower income
children and/or grandchildren who are minors or who have no, or a lower taxable income
a tax free threshold of $18,200 (all Australian residents)
a tax free threshold of $20,542 (Australian residents who qualify for low-income offsets).

The Trustee or Trustees can choose to distribute the income generated by the Trust in a way that minimises the tax burden of the beneficiaries. Depending upon the assets held in the Trust, a Testamentary Trust can potentially save thousands of dollars over its lifetime.

We also strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation, or needs, prior to making any investment decision.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au , or arrange a time for a meeting so we can discuss your requirements in more detail.

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Camden Professionals

The Benefits of Estate Planning

Time is everything when it comes to estate planning. Regardless of whether procrastination is your default mode, it’s essential to set aside any delaying tendencies and attend to your affairs promptly. By establishing a robust estate plan, you can lead a worry-free life, confident that your loved ones will be secure and comfortable in the face of unforeseen circumstances.

This article aims to highlight the advantages of estate planning. Our objective is to assist you in understanding the benefits of estate planning, providing a compelling reason to prioritise and initiate your plan without delay.

What is estate planning?

Estate planning is the process of arranging for the management and disposal of an individual’s assets, usually after their death, but it can also occur during their lifetime under certain circumstances, such as if the person is permanently incapacitated.

The process involves creating a comprehensive plan that outlines how assets will be distributed, who will be responsible for managing the estate, and how potential taxes and expenses will be addressed.

The key objectives of estate planning include asset protection, minimising tax liabilities, providing for loved ones, retaining any social security entitlements and preserving wealth for future generations of the family. However, although you can start accessing some of your super once you reach your preservation age, you won’t have full access to your super until you’ve also met a condition of release.

What are the key components of an estate plan

A well-structured estate plan typically comprises several key components. These include:

Will: this outlines the distribution of estate assets after an individual’s death and appoints an executor who is responsible for administering the estate according to the terms laid out in the will
Power of attorney: allows an individual to appoint someone they trust to manage their financial and legal affairs. An Enduring Power of Attorney is a special type of Power of Attorney that continues to operate when the person appointing them becomes incapacitated or unable to make decisions for themselves
Enduring Guardianship: an Enduring Guardian is someone you appoint to make decisions about your health and lifestyle (as opposed to your legal and financial decisions, which are to be made by an Enduring Attorney). An Enduring Power of Guardianship will usually operate when the person appointing them is unable to make lifestyle and health decisions for themselves
Advance care directive: also known as a living will, this allows individuals to express their wishes regarding medical treatment and end-of-life care in the event that they are unable to communicate those wishes in the future
Trusts: a structure where a trustee (individual or company) administers assets for the benefit of designated beneficiaries, which are then given to the beneficiaries at a pre-determined later date. For example, a trust may be set up for a child but is only payable upon their 21st birthday. Trusts can be used to minimise taxes and protect assets
Super: allocation of funds from your super is a vital component of estate planning in Australia, given the typically large sum of money involved. Addressing this as part of your estate planning ensures that the funds accumulated in your super account are distributed according to your wishes, and also in the most tax-efficient manner. You can nominate eligible beneficiaries to receive their superannuation death benefits. It is essential to review and update these nominations regularly to ensure they align with any change in your personal circumstances, such as marriage, divorce, or the birth of a child, and to ensure they remain valid and do not lapse
Guardianship of minor children: for individuals with dependent children, naming a guardian can assist to ensure the children are cared for if both parents pass away This is usually done by a clause in each parent’s Will.

What are the legal considerations for estate planning

When creating an estate plan in Australia, it is essential to consider the following legal aspects:

Validity: all estate planning documents must meet the legal requirements to be considered valid. It is advisable to seek legal advice to ensure compliance with relevant legislation, such as the Succession Act or Wills Act in each state or territory.
Tax implications: estate planning involves considering the tax consequences of transferring assets to beneficiaries. It is crucial to understand the impact of capital gains tax, stamp duty, and income tax when making decisions regarding asset distribution
Family law considerations: estate planning can be affected by family law matters, such as divorce or separation. You should consider how these factors may influence your estate plan and seek legal advice if necessary
Capacity: to create a valid will, individuals must have capacity, meaning they must be of sound mind and understand the implications of their decisions. It’s important to ensure that the will is created when the person is in good mental health to avoid potential challenges in the future.

Always seek professional guidance on estate planning

Given the complexity and legal considerations involved, it is highly recommended to seek professional guidance when creating an estate plan in Australia.

Estate planning professionals, such as estate lawyers, financial advisers, and accountants, can provide expert advice tailored to individual circumstances. They can assist in:

Structuring the estate plan
Navigating tax implications
Ensuring compliance with legal requirements
Addressing any specific concerns or goals
Explore various strategies to protect assets
Minimise tax liabilities
Maximise the benefits for beneficiaries. This may include setting up testamentary trusts, establishing charitable bequests, or utilising superannuation strategies.

Regularly review and update your estate plan

Estate planning is not a one-time set-and-forget task but rather an ongoing process. It is vital to review and update the estate plan regularly, especially in the event of significant life events such as marriage, divorce, birth of children, or changes in financial circumstances.

Regular reviews ensure that the estate plan remains relevant, aligns with current objectives, and reflects any changes in laws or regulations.

Estate planning checklist

First, gather essential documents. These should include:

Will: your last will and testament will specify how you want your assets to be distributed after your death
Super death benefits nomination: collect documents related to your super account, including any insurance policies and your previous death benefits nomination
Trust documents: if you are a beneficiary, trustee, or appointor under a family trust, gather the trust agreement and any related documents.
Enduring Power of attorney: an enduring power of attorney appoints one or more persons to make financial and legal decisions on your behalf if you become incapacitated
Enduring Power of Guardianship: an enduring power of guardianship appoints one or more people to make lifestyle and health decisions on your behalf if you become unable to do so
Healthcare directive: an advance care directive (also known as a living will) outlines your medical wishes. Your Enduring Guardian can express your wishes relating to your healthcare on your behalf in the event that you are incapable of expressing them yourself. If you have not appointed an Enduring Guardian, you can nominate responsible persons in your advanced care directive to give effect to your wishes
Insurance policies: collect documents related to life insurance, disability insurance, and critical illness insurance.

Then, make a list of assets, such as:

Bank accounts: list all your bank accounts, including checking, savings, and investment accounts
Real estate: keep records of any properties you own, including homes, land, or rental properties
Investments: list your stocks, bonds, mutual funds, and other investment holdings.
Super accounts: note your super fund details and any other retirement accounts
Personal property: include valuable possessions such as vehicles, jewellery, artwork, and collectibles.

Next, decide who you want to inherit your assets. Consider immediate family members, relatives, friends, and charitable organisations. Specify the percentage or specific assets you want each beneficiary to receive.

If you have young children, designate a guardian to care for them if you pass away.

Bottom line: estate planning in Australia is a multifaceted process that requires careful consideration of various legal, financial, and personal factors. A comprehensive estate plan is one way to see that your assets are distributed according to your wishes, whilst minimising tax implications and giving yourself peace of mind, knowing that your loved ones will be provided for long after you’re gone.

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Frequently Asked Questions

Testamentary Trusts and the Proposed 30% Trust Tax

Why Your Will Matters as a Property Investor

What is a Testamentary Trust

The Benefits of Estate Planning