The proposed 2026–27 Federal Budget changes could significantly affect how wealth is passed to future generations, particularly for families using discretionary trust structures as part of their estate planning.
While there has been public discussion about a possible “death tax”, no inheritance tax has been introduced. However, several proposed taxation reforms may still impact estates, trusts, and beneficiaries in the coming years.
Proposed 30% Tax on Discretionary Trust Income
Under the proposed reforms, a 30% minimum tax would apply to income earned in discretionary trusts from 1 July 2028. Unlike, the present situation where the distribution of income to beneficiaries attracts tax in the hands of the beneficiaries, tax will now be payable by the trust at the minimum rate of 30% with beneficiaries taking non-refundable tax credits.
The minimum tax will also apply to discretionary testamentary trusts, brought into existence after 12 May 2026, stripping away the benefits previously held by beneficiaries of discretionary testamentary trusts such as children, low-income earners, and those in receipt of government support payments.
Beneficiaries who previously received trust income at their marginal rates may face significantly higher tax liabilities under the proposed rules.
Importantly, the proposed reforms currently exclude:
- Self-Managed Superannuation Funds (SMSFs)
- Special Disability Trusts
- Deceased estates – including fixed trusts
- Certain testamentary trusts in existence as at 12 May 2026
- Charitable trusts
This means many properly structured trust arrangements under wills may continue to provide important tax and asset protection benefits.
Testamentary Trusts Remain Important
The Budget proposals provide some protection for discretionary testamentary trusts already in existence as at 12 May 2026. Income generated from assets already held within these structures is proposed to remain exempt from the new 30% minimum tax rules.
However, there is uncertainty around how new assets added after that date may be treated in the future.
These changes reinforce why professionally drafted Wills and estate planning documents are essential. A Will that was prepared many years ago may no longer provide the level of tax protection your family expects.
Capital Gains Tax Changes May Affect Estates
The proposed Budget also includes broader Capital Gains Tax (CGT) reforms that could affect executors and beneficiaries when estate assets are sold.
From 1 July 2027, the current 50% CGT discount for assets held longer than 12 months is proposed to be replaced with a cost base indexation model.
In addition:
- The exemption for pre-20 September 1985 assets is proposed to end from 1 July 2027
- The main residence exemption is expected to remain available in many circumstances, particularly where a property is sold within two years of death
- Complex trust structures may affect eligibility for some CGT concessions
Executors and beneficiaries may therefore need to carefully consider the timing of asset sales and ensure detailed cost base records are maintained.
Why Reviewing Your Will Matters
Estate planning is no longer just about deciding who receives your assets. It is also about ensuring your family is protected from unnecessary tax exposure and future legal complications.
If your Will has not been reviewed in several years, now is an appropriate time to seek legal advice about whether your current arrangements remain suitable under the proposed reforms.
Our Wills & Estates team can review your current estate planning structure and advise on the most appropriate strategy for your circumstances.
Contact us for a free review of your Will, or quote EOFY10 to receive 10% off new Wills and estate planning documents.
For more information regarding the proposed measures, visit the Australian Government Federal Budget website:
https://budget.gov.au/