Following our last update just after the Federal Budget in May, there was a significant backlash regarding the inclusion of testamentary discretionary trusts (TDTs) in Wills being included in the new proposed minimum 30% on discretionary trusts.
Following extensive feedback, the Government backed down on its initial stance and announced on 18 June 2026 that Testamentary Discretionary Trusts will be exempt from the 30% minimum tax on income.
This was highly anticipated by many advisors due to extensive lobbying that the 30% minimum tax effectively created a ‘death tax’. This is a good result for families wanting to set up a tax effective estate plan for their children and grandchildren.
Following this announcement, Treasury also released a Consultation Paper entitled ‘Minimum tax on discretionary trusts’ on 8 July 2026 which confirmed the exemption. The Consultation Paper confirms that income from all types of testamentary discretionary trusts (TDTs) will be exempt from the 30% minimum tax provided such trusts are:
- Established for genuine testamentary purposes with income deriving from assets left in the TDT from assets of the deceased estate, and not injections of non estate assets; and
- The TDT can only benefit individuals and income tax exempt entities (and not further trusts or corporate beneficiaries).
The Paper does not go into further detail on any specifics of these conditions, but calls for submissions from the public on various issues concerning the 30% trust tax generally. The deadline for submissions was 31 July, 2026 and it will be interesting to see whether the Government makes further concessions based on the feedback it has received. Stay tuned!
So what does all this mean?
Clients with TDTs in their Wills can breathe a sigh of relief. TDTs are confirmed as one of the most tax effective intergenerational wealth vehicles.
As legislation clarifies the detail, a review at that time of their TDT Will is advisable. In the meantime, TDT Wills should be checked to ensure that the TDT contains powers that allow its terms to be changed if future legislation requires, as the client willmaker may not be around to change their Will at that future time. Not all TDT Wills are created equal, so if in doubt, get it checked by an expert estate planning lawyer – we are happy to help.
For clients with discretionary trusts (family trusts) the message is less clear. They should receive tax advice on whether a restructure would be favourable. Investment decisions are not solely based on tax outcomes, and we can assist with discussions regarding the importance in a client’s particular situation, of other issues, such as asset protection issues that may hold ongoing importance to the client.
Contact us for more information
Estate First Lawyers are experts in estate planning law. We can advise you on all aspects of your inheritance planning and are happy to review your existing estate plan to ensure that it provides the optimum security and tax effectiveness for your particular situation.
Please get in touch with our client care team today on 1300 132 567 or email [email protected].
Article written by Ann Janssen and Josh Philo
