On 18 June 2026, the Federal Government released further detail on its tax reform package. Tucked inside the announcement was important news for anyone whose Will includes, or could include, a testamentary trust.
The Government has confirmed that income from Testamentary Trusts will be exempt from the proposed new tax rules, putting to rest a concern that had been worrying many families and their advisers.
If you have an estate plan in place, or you are thinking about one, here is a plain-English look at what was announced and what it could mean for you.
Key points
- Income from discretionary testamentary trusts set up for genuine testamentary purposes will be exempt from the proposed new minimum tax on trusts (confirmed 18 June 2026).
- There is no inheritance tax or death duty in Australia, and these measures are intended to put that beyond doubt.
- From 1 July 2028, the exemption applies only where the trust can benefit individuals and income-tax-exempt entities, so how your Will defines its beneficiaries matters.
What is a Testamentary Trust?
A Testamentary Trust is a Trust created by your Will that only comes into existence after you die. Rather than leaving assets directly to a beneficiary, your estate passes them into a Trust, where they are managed by a trustee for the benefit of the people you choose.
Testamentary Trusts are one of the most popular tools in estate planning because they can offer real advantages, including potential tax efficiency for beneficiaries, protection of assets where a beneficiary is vulnerable, going through a relationship breakdown or has creditors and flexibility in how and when income and capital are distributed.
For families with children, blended families, or beneficiaries who may need extra protection, they are often a cornerstone of a well-drafted Will.
What has the Government announced for Testamentary Trusts?
As part of its broader tax reform agenda, the Government has been developing a new minimum tax that will apply to certain Trust income. Understandably, this raised questions about whether Testamentary Trusts, which are a normal and legitimate part of passing on a deceased estate, might be caught.
The 18 June announcement confirms they will not be, with the Government stating it will exempt the income of all types of discretionary Testamentary Trusts from the minimum tax, provided the trust is established for genuine testamentary purposes.
The Government was also at pains to reinforce a point it has made before – there is no tax on inheritances or deceased estates in Australia – and these measures are intended to put that beyond doubt.
You can read the full announcement on the Prime Minister’s website.
For families worried that recent tax reform might quietly erode the benefits of estate planning, this is welcome reassurance.
What conditions apply to the Testamentary Trust tax exemption?
The exemption is genuinely good news, but the detail matters. There are two conditions worth understanding now.
The exemption applies to deceased estate assets.
The exclusion from the minimum tax is limited to income generated from the assets of the deceased estate. In practical terms, this means the concession is designed for the assets that actually pass through your estate, rather than unrelated assets that might later be added into the trust structure.
Trusts created from 1 July 2028 face a tighter rule on beneficiaries.
For discretionary Testamentary Trusts established on or after 1 July 2028, the exemption will only apply where the trust can benefit individuals and income-tax-exempt entities. If a testamentary trust is drafted so that it could distribute to companies or other non-individual entities, that could affect access to the exemption. This makes the way your will defines the class of beneficiaries an important drafting consideration going forward.
What is still to come
It is important to keep this in perspective. These are announced details that form part of a reform package still progressing through Parliament and consultation.
The Government has flagged that a consultation paper on the minimum tax as it applies to discretionary trusts is due in the coming weeks, with further implementation detail to follow. The finer points and the final legislation are not yet settled.
In other words, the direction of travel is clear and reassuring for Testamentary Trust planning, but the precise rules will firm up over the coming months.
What this means for you
For most people with an existing estate plan, the headline is simple:
testamentary trusts remain a sound and tax-effective way to provide for your loved ones
That said, this is a good moment to review your arrangements, particularly if:
- your Will already creates one or more Testamentary Trusts, and you want to be confident the structure remains fit for purpose under the new rules;
- you are preparing a new Will and are weighing up whether a Testamentary Trust is right for your family;
- your Testamentary Trust provisions allow distributions to companies or non-individual entities, which may warrant a closer look ahead of the 1 July 2028 changes; or
- you are administering a deceased estate that involves a Testamentary Trust and want to understand how the proposed rules may apply.
A short review now can give you peace of mind and help ensure your estate plan continues to do exactly what you intend.
Frequently asked questions
Are Testamentary Trusts affected by the new minimum tax on trusts?
No.
On 18 June 2026 the Government confirmed that income from discretionary testamentary trusts established for genuine testamentary purposes will be exempt from the proposed minimum tax.
Is there an inheritance tax or death duty in Australia?
No.
There is no tax on inheritances or deceased estates in Australia, and the Government has reinforced that these measures put that position beyond doubt.
What changes for Testamentary Trusts created on or after 1 July 2028?
For trusts created from 1 July 2028, the exemption applies only where the trust can benefit individuals and income-tax-exempt entities.
If the trust could distribute to companies or other non-individual entities, that may affect access to the exemption, so how your Will defines its beneficiaries becomes an important drafting consideration.
Talk to Nevett Ford
At Nevett Ford Lawyers, our Wills and Estates Team helps Melbourne and Victorian families plan with confidence – from drafting Wills with effective Testamentary Trust provisions to administering deceased estates.
If you would like to understand how these changes might affect your estate plan, please contact us.
