Testamentary Trusts After the 2026 Budget | TLS Law Perth

If you already have a testamentary trust in your Will, or you are in the middle of planning one, the 2026-27 Federal Budget probably made you nervous. News of a new minimum tax on discretionary trusts is exactly the kind of headline that makes people wonder whether their estate plan still holds up.

Here is the good news: On 18 June 2026, in a joint press release held by Anthonmy Abanese and Jim Chalmers, it was confirmed the Government will exempt income from all types of discretionary testamentary trusts from the minimum tax, provided they are established for genuine testamentary purposes.

Why families use testamentary trusts in the first place

A testamentary trust is not principally a tax minimisation strategy. As Natale Ricciardi, Principal of TLS and an Accredited Wills and Estates Specialist, put it in a submission to Government earlier this year, “the primary purpose of testamentary discretionary trusts is to protect an inheritance for children, widows, widowers, disabled beneficiaries and vulnerable adults after a person’s death.”

That protective purpose has not changed. Families still use testamentary trusts to:

• Shield a surviving spouse’s inheritance if they later re-partner and that relationship breaks down.
• Protect an inheritance for grandchildren if an adult child separates or becomes bankrupt.
• Provide ongoing, flexible support for a beneficiary who cannot manage assets directly, including a disabled or vulnerable family member.
• Delay a young adult from receiving full control of an inheritance before they are ready for it.

What the Budget actually proposed

In the 2026-27 Federal Budget, handed down on 12 May 2026, the Government announced it intends to introduce a 30 per cent minimum tax on discretionary trusts from 1 July 2028. Under the proposal, the trustee would pay tax at 30 per cent, with beneficiaries receiving non-refundable credits for tax already paid at the trust level.

This is a proposed measure. It has not passed Parliament, and important design details, including how the tax will be collected and how it interacts with company beneficiaries, are still being worked through in consultation.

The part that matters for testamentary trusts

The detail that should ease most families’ concerns is this: it has been confirmed that testamentary trusts will sit outside the new minimum tax regime. In  other words, the new rules regarding the minimum 30% tax on discretionary trust will not apply to testamentary trusts.

What this means if you are planning your Will now

If you are still deciding whether to include a testamentary trust in your Will, two things are worth noting:

1. Testamentary Discretionary Trusts remain very effective vehicles for asset protection; and
2. The proposed 30% minimum tax on discretionary trusts will not apply to Testamentary Discretionary Trusts, provided they are established for genuine testamentary purposes.

Where TLS fits in

At TLS, we draft testamentary discretionary trust Wills as part of our estate planning services, and we have been directly engaged in the policy conversation around this measure. If you already have a testamentary trust and want to confirm it is structured well under the current proposal, or you are planning a new Will and want a structure that holds up regardless of how the final rules land, talk to our team about your testamentary trust Wills.

This article reflects a proposed measure that has not yet been legislated and may change following consultation. It is general information, not tax or financial advice. Speak with a TLS estate planning lawyer and your accountant about how this may affect your specific circumstances.