Sarah Carey
You may have seen recent commentary about trusts following the Federal Budget and wondered whether testamentary trusts (TTs) remain worthwhile. It’s important not to make decisions based on attention-grabbing headlines—doing so could have unintended long-term consequences for your family.
At this stage, the proposed changes are not yet law. Testamentary trusts continue to offer far more than tax benefits alone and, importantly, the ability to stream income remains intact.
The short answer: yes — they remain a very effective estate planning tool.
What has been announced
- Existing testamentary trusts (where the will-maker has already passed away) are expected to be protected from the proposed changes.
- For new testamentary trusts, income distributed to adults may be taxed at a minimum rate of 30%.
- For beneficiaries earning more than $45,000 from things like salary and wages, the practical tax outcome may be largely unchanged.
Importantly, these are proposed changes only — they are not yet law and are not expected to take effect until 1 July 2028 (at the earliest).
What remains unchanged
Even if the tax rules change, many of the key benefits of testamentary trusts will continue:
- Flexibility: Trustees can decide each year who receives income and in what proportions.
- Asset protection: Helps protect inheritances from family law claims, intergenerational control, vulnerable beneficiary protections, creditors, and other risks.
- Control over timing: You can delay when beneficiaries receive full control of their inheritance.
- Protection for children and vulnerable beneficiaries: Helps safeguard assets for minors or those not ready to manage funds.
- Succession planning: Allows you to maintain control over how assets pass to future generations.
What is still uncertain
There are still key details to be clarified, including:
- How income distributed to minor beneficiaries will be taxed.
- Whether existing concessional treatment for minors will continue.
Why still consider a testamentary trust?
Tax is only one part of the picture. Testamentary trusts continue to provide significant legal protection, flexibility, and long-term control, which a simple will cannot.
When we draft testamentary trusts, they are typically optional – meaning your executor and beneficiaries can decide at the time whether implementing the trust is appropriate based on the law and circumstances then.
Key takeaway
Despite the headlines, testamentary trusts are not “dead”—they remain a powerful and flexible estate planning tool.
Testamentary trusts continue to play an important role in protecting wealth across generations, including safeguarding vulnerable beneficiaries, protecting inheritances from relationship breakdowns, and preserving family assets in higher-risk situations. They also retain valuable income and capital gains streaming flexibility.
If the government ultimately preserves favourable treatment for vulnerable beneficiaries (such as children), testamentary trusts may become even more attractive than before.
Disclaimer
People + Partners Wealth Management Pty Ltd ABN 67 127 250 613 is a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306. The content above is for general information only and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation, or needs.
