Federal Budget 2026-27 – Minimum Tax on Discretionary Trusts: Comments from an Estate Planning Perspective Wills, Estate Planning and Structuring Deceased Estates 13th May 2026 Author Luke Haley & Rowdy Johnson Discretionary trusts are a common structure in Australia for investment and business operations and provide a number of benefits including tax flexibility and asset protection. A discretionary testamentary trust (a discretionary trust created by a Will) has similar benefits, but currently with the additional tax benefit of allowing income distributions to children at adult tax rates (including the tax-free threshold of $18,200). This makes this structure extremely tax effective in the right scenario. Current income distributions from a discretionary trust would have an effective tax rate of less than 30% where the beneficiary’s total income is less than $45,000 per annum. Budget Announcements – Minimum Tax on Discretionary Trusts It has now been announced that: Effective from 1 July 2028, there will be a 30% minimum tax rate on discretionary trusts. The 30% tax will need to be paid by the trustee of the trust. While the 30% tax paid is credited to the beneficiary in their own tax return, it is not refundable to the extent their own tax rate is lower than 30%. There will be exceptions including fixed and widely held trusts, superannuation funds, special disability trusts, deceased estates and charitable trusts. Additionally, certain types of income are excluded including primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding applies and income from testamentary trusts existing on 12 May 2026. Relevantly for estate planning purposes, it does not appear that future testamentary trusts will be excluded from the 30% minimum tax rate. Estate Planning Considerations Testamentary trusts are included in Wills for a range of reasons including protecting assets from creditors, protecting from relationship breakdown, managing funds for beneficiaries with disabilities or addiction, managing succession issues between blended families and tax minimisation. The exact form of testamentary trust used can vary depending on the objectives of the Willmaker. The style of trust could include a discretionary testamentary trust, a protective trust, a life interest or a special disability trust, among others. Each can have differing rules around entitlements to income. It is not yet clear whether trusts that do not clearly fall squarely within the discretionary trust model will be captured by these budget measures, save that special disability trusts have been specifically excluded. We will wait for the detail to assess the application of these measures to the various forms of testamentary trust that can be included in a Will. Where a discretionary testamentary trust is created purely for tax minimisation purposes, then these measures may reduce the tax effectiveness of the trust, particularly where the family group includes children or other individuals who have minimal personally earned income. However, it is not necessarily the case that tax benefits will be completely removed, with the top marginal rate of 45% leaving a potential 15% saving in the right circumstances. The measures reinforce the value in our preferred strategy of having flexible options within Wills in relation to the use of testamentary trusts and their exact form. How we can help At Moores, our experienced Private Clients team can assist with reviewing existing estate plans and advising on flexible testamentary trust structures in light of the proposed reforms. We work with individuals and families to develop practical estate planning strategies that balance tax, asset protection and succession considerations. Contact us Please contact us for more detailed and tailored help. Subscribe to our email updates and receive our articles directly in your inbox. Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.