The Government has introduced legislation proposing changes to the taxation of discretionary trusts, including trusts established under a will#

The legislation is not yet law and may change before it is passed. However, the proposals make this a sensible time to review wills containing testamentary trusts.

What is a Testamentary Trust?

A testamentary trust is established under a Will to hold and manage inherited assets for beneficiaries. It can provide flexibility, help protect vulnerable beneficiaries and offer tax advantages, particularly where income is allocated to children or family members with low taxable incomes.

What is Changing?

The Bills propose a minimum 30% tax on certain discretionary trust income from 1 July 2028.

Qualifying testamentary trust income would remain eligible for relief, subject to conditions concerning the source of the trust’s assets and who is permitted to benefit.

For testamentary trusts established on or after 1 July 2028, the proposed beneficiary condition would restrict eligible beneficiaries to:

• individuals;
• income-tax-exempt entities; and
• trustees of special disability trusts.

Why could this affect an existing Will?

Many wills allow testamentary trusts to benefit associated companies and family trusts, as well as individual family members.

Under the proposed wording, merely allowing an ordinary company or family trust to benefit may jeopardise the tax relief—even if no distribution is actually made to that entity. This could reduce the tax advantages intended for children and other beneficiaries.

A company acting as the trustee is different from a company being entitled to benefit. Having a corporate trustee does not, by itself, create this problem.

Does every Will need to be changed before July 2028?

No. These proposals do not invalidate existing Wills, and not every testamentary trust Will requires amendment.

The relevant date is when the trust is established, rather than when the will was signed. A Will signed years ago could therefore create a trust subject to the new conditions if it is established on or after 1 July 2028 and establishment usually occurs after the date of death.

Some Wills already contain suitable beneficiary restrictions. Others may need targeted amendments. There is no universal legal deadline requiring everyone to sign a new will before July 2028.

Is this a tax on the inheritance itself?

The proposed minimum tax concerns income earned by the trust. It does not impose a 30% tax on inherited capital simply because the testamentary trust is established.

What should you do now?

• If your Will includes a testamentary trust: arrange a review of its beneficiary provisions and the proposed tax implications.
• If you are unsure what your Will provides: ask us to check whether these proposals are relevant to your arrangements.
• If health or capacity is a concern: prioritise the review, as it may become difficult or impossible to amend your will later.
• If you administer an existing testamentary trust: obtain advice before changing its terms or adding assets from outside the deceased estate.

There is no need to make rushed changes. Any amendment should reflect your family circumstances, estate-planning objectives and the legislation’s final form.

How Hill Legal can help

We can review your will, identify whether the proposed changes may affect your arrangements and advise whether action is appropriate now or should await further legislative developments.

Please contact Hill Legal now on 03 5976 6500 to arrange a review.

This bulletin provides general information based on the Bills as introduced in October 2026. The proposals may be amended or may not become law. Obtain advice about your circumstances before changing your will or trust arrangements.

# Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026.