A new 30 per cent minimum tax on discretionary trusts has pushed a technical budget measure into the centre of Australia’s estate-planning debate.
The Albanese government says the change is about fairness. From 1 July 2028, discretionary trusts will face a 30 per cent minimum tax, paid at trustee level, with some exceptions and restructuring relief available. The official budget papers also say rollover relief will run for three years from 1 July 2027 for small businesses and others that want to restructure.
But the political problem is not just the rate.
It is the trust type.
Estate planners are now focused on whether testamentary discretionary trusts, commonly used in wills to give families flexibility after death, are caught by the new rules unless they fall within a specific exclusion. That matters because these structures are often used to manage inheritances, asset protection and changing family circumstances, not just tax.
The budget line that changed the conversation
The government’s explainer says the minimum tax will not apply to fixed trusts, widely held trusts, complying super funds, special disability trusts, deceased estates and charitable trusts. It also excludes income from assets of testamentary trusts existing at announcement.
That wording is doing a lot of work.
For families with existing arrangements, the key phrase is “existing at announcement”. For future wills and new testamentary discretionary trusts, the comfort is less obvious.
That is why advisers are nervous. A testamentary discretionary trust is not the same as a deceased estate. It is a trust created through a will, often to give the trustee discretion over who receives income and when.
So what does that mean in plain English? A will structure that families expected to be flexible may face a higher tax floor on future trust income if it is inside the new rules.
Quick take:
The assets themselves are not being taxed simply because someone dies. The issue is the income later earned through certain trust structures, and whether that income can still be distributed below a 30 per cent tax floor.
Why property families should care
This is not only a wealth-management story.
Many Australian families hold property, business assets or investment portfolios across trusts, companies, personal names and superannuation. A change to trust taxation can affect estate plans, borrowing capacity, cashflow and the timing of asset transfers.
Australian Property Review has already warned that tax reform is moving beyond slogans about investors and into the structures people use to buy, hold and pass on assets. In Property Tax Changes Could Reshape Investors, the core point was simple: tax rules do not just raise revenue. They change behaviour.
This trust change does the same thing.
A family may still decide a testamentary discretionary trust is worthwhile for asset protection or control. But the tax trade-off may be less attractive than it looked under the old assumptions.
The catch most families will miss
The immediate instinct will be to ask: “Is this a death tax?”
Technically, the government can argue no. The measure is framed as a minimum tax on discretionary trust income, not a tax on inherited assets.
But politics rarely lives in the technical distinction.
If a trust is created by a will and future income from inherited assets is taxed differently because of that structure, many families will see it as part of the broader death-duty debate. That perception matters, especially when Australia is heading into a large intergenerational wealth transfer.
The government’s case is that discretionary trusts can allow income splitting, where income is allocated to beneficiaries on lower marginal tax rates. Treasury’s explainer says families with discretionary trusts had, on average, a tax rate around four percentage points lower than similar-income families without a trust in 2022–23. citeturn656528view2
That is the fairness argument.
The counterargument is that not every discretionary trust is a tax dodge. Some exist because families are messy. Beneficiaries can divorce, go bankrupt, develop health issues, run businesses, or need support at different stages of life.
A fixed trust is cleaner for tax policy. A discretionary trust is often more useful in real life.
Who is most exposed?
The sharpest pressure is likely to fall on families that were planning to use a testamentary discretionary trust after 2028 and assumed estate-related trusts would sit outside the new regime.
Existing structures need advice too, because the details will matter. The official documents point to exclusions for certain existing testamentary trust assets, but future arrangements may not be treated the same way. citeturn656528view2
Property investors with family trusts should also pay attention. Australian Property Review recently covered the ATO’s tougher posture around family trust mistakes in The ATO’s family trust warning could get expensive fast. The pattern is clear enough: trusts are no longer a quiet background issue.
They are becoming a live tax-risk issue.
What could still change
This measure is not yet the final lived reality for households.
The law still needs detail, consultation and administration. The budget papers say the collection mechanism will be subject to consultation. citeturn656528view2
That leaves several open questions:
Will future testamentary discretionary trusts receive any carve-out?
How will mixed assets be treated?
What happens when a will is already drafted but the trust does not commence until after death?
How practical will restructuring relief be for families and small businesses?
Those details matter because estate planning is not something people rewrite every month. A bad assumption today can sit quietly inside a will for years.
The practical take
Do not panic-rewrite your will because of one budget announcement.
But do not ignore it either.
Start here: ask your solicitor, accountant or licensed adviser to review any will that uses a testamentary discretionary trust, especially if property, business assets or investment income are involved.
The question is not just “will this save tax?” It is: “Does this structure still do the job after 1 July 2028?”
For many families, the answer may still be yes. But the old default setting needs a fresh pressure-test.
