Part five of Nexia’s series on the CGT changes and the proposed 30% minimum tax on discretionary trusts
A testamentary trust is a trust established through a person’s will and can help protect assets, provide greater control over inherited wealth and support long-term succession planning.
As the CGT reforms and proposed 30% minimum tax on discretionary trusts continue to generate discussion, many families are asking:
“Is my testamentary trust affected?”
Based on the legislation introduced into the Australian Parliament in October 2026, testamentary trusts are expected to be largely excluded from the proposed 30% minimum tax on discretionary trusts, subject to integrity rules. They are therefore not expected to be affected in the same way as many discretionary family trust structures.
However, that does not mean testamentary trusts can be overlooked. While the trust itself may remain largely unaffected, the broader reforms could still have implications for estate planning structures and long-term family wealth strategies.
Other CGT rules are also proposed to apply to testamentary trusts from 1 July 2027. This includes the deemed disposal of assets held by an existing testamentary trust at 30 June 2027. A notional gain or loss may arise, with any tax liability crystallising when the asset is later realised on or after 1 July 2027 (refer to section 112-165 of the Income Tax Assessment Act 1997).
The key message is that testamentary trusts appear to be in a relatively strong position, but they should still form part of a broader review of family wealth and succession arrangements.
What is a testamentary trust?
A testamentary trust is established through a person’s will and takes effect upon their death.
Rather than assets passing directly to beneficiaries, they are transferred into a trust structure that can provide a range of benefits, including:
- Asset protection
- Greater flexibility in succession planning
- Protection of family wealth across generations
- Tax planning opportunities
- Greater control over how inherited assets are managed and distributed
For many business owners and family groups, testamentary trusts form an important part of long-term wealth preservation and intergenerational planning.
Are testamentary trusts caught by the proposed 30% minimum tax?
Based on the draft legislation, the answer is generally no.
The proposed 30% minimum tax is primarily directed at discretionary trusts used for investment and income distribution purposes.
Certain testamentary trust arrangements are intended to be excluded from aspects of the proposed changes, reflecting their different purpose compared with many family investment structures.
This provides some comfort for families with existing estate planning arrangements involving testamentary trusts.
Why estate planning should still be reviewed
It may be tempting to assume that no further action is required if testamentary trusts are excluded from the proposed 30% minimum tax. However, the proposed reforms provide an opportunity to revisit broader structures, including discretionary trusts, companies, investment entities and succession arrangements.
As outlined above, new CGT rules are also proposed to apply to testamentary trusts, including the deemed disposal of CGT assets held at 30 June 2027.
Changes made elsewhere within a family group can have flow-on effects for estate planning structures. For example:
- Existing trusts may be restructured
- Asset ownership may change
- Control of family entities may be reviewed
- Future succession objectives may evolve
When these changes occur, testamentary trust arrangements established years ago may no longer align with the family’s current circumstances or broader wealth strategy.
The fixed trust versus discretionary trust question
A recurring theme throughout the proposed tax reforms is the distinction between fixed and discretionary trusts.
That issue may also become relevant for estate planning.
If family wealth structures evolve, or trusts are modified to achieve particular tax or succession objectives, there may be implications for how future estate planning arrangements operate.
This does not mean testamentary trusts are disadvantaged. Rather, it highlights the importance of considering estate planning as part of any broader restructuring exercise.
The bigger risk may be doing nothing
For many families, the proposed reforms create an opportunity to revisit questions that may have been delayed for years, including:
- Does my will still reflect my family’s wishes?
- Is our testamentary trust structure still appropriate?
- Will the next generation be able to manage inherited wealth effectively?
- Does our estate plan still align with our business and investment structures?
- Have changing tax rules affected our planning assumptions?
Many people establish wills and testamentary trusts during a major life event and do not review them again. The proposed reforms are a useful reminder that estate planning should evolve alongside family wealth, business interests and investment structures.
Estate planning remains an important conversation
One of the themes throughout this series is that effective planning is about more than tax.
While the CGT reforms have prompted discussions around valuations, ownership structures, and trust taxation, estate planning remains an important part of any long-term wealth strategy.
For many families, preserving wealth for future generations is more important than achieving a particular tax outcome in any one year. A well-designed testamentary trust can continue to play an important role in supporting that objective.
The focus should be review, not reaction
At this stage, testamentary trusts appear to be less directly affected than discretionary trusts by the CGT reforms and 30% minimum tax on discretionary trusts.
However, the broader changes may still provide a reason to revisit estate planning arrangements and ensure they continue to support a family’s long-term objectives.
Families that review their structures early are likely to have more time to understand their options and make decisions before circumstances force change.
How Nexia can help
If your will includes testamentary trust provisions, now may be a useful time to review how those arrangements fit within your broader wealth, succession and family planning strategy.
The proposed reforms may not require wholesale changes to your testamentary trust, but they provide a valuable opportunity to confirm that your estate planning remains fit for purpose.
Speak with your local Nexia Advisor to review your testamentary trust arrangements and understand how the proposed reforms may affect your broader estate and succession plans.
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
