Many wills create a trust when the will-maker dies. These are called testamentary trusts, and they are often used to look after children, grandchildren or family members who need support. With the proposed minimum tax on discretionary trusts now before Parliament, it is worth understanding where these trusts fit.
The general position
The bill introduced on 14 October 2026 includes an exclusion from the proposed 30% minimum tax for testamentary trusts established for genuine testamentary purposes. The bill is not yet law, and the details may change.
The conditions
Law firms reviewing the bill have noted that the exclusion comes with conditions:
- Where the income comes from. The exclusion is aimed at income from the assets of the deceased estate. Income from other assets added to the trust after 7.30pm (AEST) on 12 May 2026 would generally not be excluded.
- Who can benefit. For testamentary trusts that start on or after 1 July 2028, the exclusion would generally only apply where the beneficiaries are individuals, tax-exempt entities (such as registered charities) or special disability trusts. Income going to a company, another trust or a partnership would not be excluded.
The second condition is the one drawing attention. A testamentary trust usually starts when the will-maker dies, not when the will is signed. So a will signed today could create a trust that starts after 1 July 2028, and that trust would need to meet the new condition.
Why this matters for existing wills
Many wills give the trustee wide powers, including the power to pay income to family companies or other trusts. Some lawyers have suggested that wills with these powers may need a review once the law is settled.
Other lawyers take a more measured view. They point out that the bill may still change, and that a will that is current and reflects a person's wishes does not need to be rewritten in a hurry because of a proposal.
What happens next
The bill will be debated in Parliament, and the final rules may differ. Wills are a legal matter, so questions about a particular will are best taken to the lawyer who prepared it. We are happy to work alongside them on the tax side.
Sources
- Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, introduced 14 October 2026 – aph.gov.au
- Second reading speech, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, 14 October 2026 – treasury.gov.au
This article is general information only. It doesn't take into account your personal circumstances and isn't financial product advice. Please speak with us before acting on anything here.
