How the Budget Impacts Testamentary Trust Wills

There's a lot of noise right now about the 2026 Federal Budget and what it might mean for beneficiaries receiving their inheritance within a discretionary testamentary trust. A lot of people have a lot of questions but the one I've been asked the most is "Fiona, what are you going to do about the testamentary trust you've written into my will?"

The answer is: nothing. I'm not doing anything.

Not because I don't care, not because I don't think some people might be impacted but because I'm not in the business of making decisions based on assumptions.

Until the finer details are consulted on, pass through Parliament, and are put into legislation, every lawyer, accountant, financial planner, and armchair expert in the comments section of your favourite financial commentator is operating on a proposal.

So, what am I doing? I'm reading. I'm listening. I'm asking questions of people much more excited about tax than I am. I'm continuing to guide people on what they want life to look like after they die and helping them achieve their goals.

And I'm congratulating people on not being dead yet.

#businessasusual

Will I continue to focus on including discretionary testamentary trusts in my estate plans when that's the best option for my clients? Heck yes!

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Why I Discretionary Testamentary Trusts (hint: nothing to do with tax)

The gift of choice, not control. One of the biggest gifts you can give your beneficiaries is the gift of choice. We're not ruling from the grave. We're not guessing what their personal circumstances, the economy, or your asset pool is going to look like when you die - we're giving them a crack at using ALL the tools available to them when the time comes to make the best decision for them.

A discretionary testamentary trust means your beneficiary gets to decide if they want to take their inheritance in a trust OR just stick it in their bank account. But you're asking them to do this AFTER receiving professional advice about distributing income, asset protection, ongoing costs, and any tax implications they may face. They get to weigh up all the pros and cons and make their own decision whether this structure works for them or not.

If you take away the lifeboat because you heard death-tax-something-something-30%-testamentary-something-something  on the news, well then, they don't get a choice to stay afloat or swim, they're on their own, sink or swim, keeping one eye on the shore and one on the sharks.

Legacy protection. Without a testamentary trust, an inheritance lands in a beneficiary's personal bank account and becomes part of their personal estate. That means it's exposed to relationship breakdown, business failure, financial difficulty, or claims from creditors, and to torture the metaphor, all the other sharks out there (yes, including the ATO).

When assets are held inside a testamentary trust, they are not held in the beneficiary's own name, which means if there's a relationship breakdown, the assets are far harder to bring into a settlement pool than a lump sum sitting in a bank account. If a beneficiary is going through financial hardship or a period of vulnerability, a trustee can be nominated to manage distributions with care and judgment. And for others (including blended families) a testamentary trust offers the gift of enjoying an asset during lifetime, while knowing that the asset can be passed to children or grandchildren so they can also benefit from it.

Structure or flexibility - what you need, when you need it. Unlike a standard will, a testamentary trust allows you to choose who gets what and when. When people talk about wanting their legacy to be about caring for the people they love after their death - this is where the heavy lifting is done by a trust.

There's no other structure available to will makers that provides a framework for ongoing income distribution to minor beneficiaries before they reach the age of entitlement (ie you can continue to help your children live their best life as they grow up, not lock their inheritance up until they reach preservation age and then dump it in their bank account). Testamentary trusts also protect vulnerable beneficiaries who don't qualify for a disability trust but benefit from having a trustee to exercise judgment on their behalf.

A standard will offers none of that structure or flexibility.

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Gifting Your Die Pie in a Container (not a napkin)

When I sit across from people and talk about what they want life to look like after they die, they rarely say they want to protect their family from paying tax (obviously, we all want to pay as little as we can, but for people who are focused on legacy, kindness, and looking after their family, tax is not the primary motivator).

What they want is to know how they can best protect the people they love. And despite (or perhaps in spite of) the proposed tax changes, a discretionary testamentary trust continues to provide that protection. Hands down. No debate.

We often talk about Die Pie (which is the pie you make with all your assets when you die). Your Die Pie will be cut up into pieces and distributed according to the instructions left in your will. As a will maker, you have the ability to offer your beneficiaries the gift of deciding how they receive their piece of Die Pie:

In a container with structure, protection, flexibility, and with a lid in case anyone tries to snaffle some.

Or in a napkin.

A standard will is like handing your beneficiaries their Die Pie in a napkin. It goes directly into their bank account or sits in trust until they reach whatever age you've nominated, then it's handed to them. No structure. No protection. No ongoing flexibility. No questions. No financial advice.

It's true, not all estates require a container. Sometimes the slice of Die Pie a beneficiary receives is easy to manage, or small, or they're happy to carry it away and consume it all in one sitting.

But that's not most of my clients.

A testamentary trust offers the legal equivalent of a takeaway container. More structure. More safety. More checks and balances. More polymers, so what you're carrying isn't going to end up a soggy mess.

When we include a discretionary testamentary trust in your will, we're not forcing your beneficiaries to receive their piece of Die Pie one way or the other: we're offering the choice, depending on their circumstances or preference.

Napkins tend to decompose before you've made it home. Containers keep things fresh for longer.

This month's budget proposes that beneficiaries who receive their inheritance in a discretionary testamentary trust pay a base rate of 30% tax on any income generated by assets held in the trust (not, as some people are suggesting, on the principle put in the trust).

If this proposal gets passed into law, and you've died, and you've given your beneficiaries the option of choosing whether they want to take their Die Pie in a container or not, they'll be given professional advice that outlines exactly what their tax obligations look like.

You don't have to pull out your crystal ball and try to predict what might happen in the future. Your beneficiaries can do that based on you giving them the gift of choice.

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Worrying about something that won't impact you (and may not impact your beneficiaries) is fruitless. Here's what you can do instead...

Congratulations, you're not dead yet!

Regardless of where this legislation lands, there are four things you can do right now, today, to ensure you're leaving your beneficiaries well cared for:

✅ Review your will so it matches your life. The right time to update your will is not "every three years" or "when the law changes". It's whenever your life has changed: a new relationship, a separation, new children or grandchildren, a business built or sold, a beneficiary whose circumstances look different than they did when we last sat down together. Your will should reflect where life actually is.

✅ Check what your super is doing. Unless you have a valid binding death benefit nomination, superannuation usually sits outside your will and passes according to who you have nominated, or whoever the fund trustee decides. A lot of people believe their super will end up going in the same direction as other assets within their estate. A lot of people are wrong.

✅ Make sure the right people are on the title of your house. Many people make assumptions about ownership of their property that can turn out to be very different after death. The way your property is owned and subsequently distributed after your death can have a massive impact on your beneficiaries. We can work with you to ensure your property is owned in such a way that it continues to meet your estate planning goals.