How the 2026 Federal Budget Could Impact your Estate Planning

Over the last week or so, there has been plenty of commentary about the Federal Budget 2026. And most of that commentary focuses on the proposed tax reforms.

We are here to tell you – it’s not all bad.

One of the biggest proposals is the introduction of a minimum 30% tax on discretionary trusts from 1 July 2028. The Government has also proposed a three-year rollover relief period from 1 July 2027 to allow existing structures to be reviewed and potentially restructured.

Now, you might be thinking how can this be anything but bad?

For many Aussie families, discretionary trusts are an important part of long-term wealth and estate planning. These trusts are often used to hold family investments, operate businesses, protect assets from external risks and distribute income among family members in a tax-effective way.

They also exists in many wills as testamentary trust provisions. A testamentary trust is a trust created through a will that only comes into effect after a person passes away. These structures are commonly used to:

• Protect inheritances for children or vulnerable beneficiaries;
• Provide greater control over how assets are managed after death;
• Assist with tax-effective income distribution to beneficiaries;
• Protect assets in the event of bankruptcy, divorce or financial risk; and
• Preserve family wealth across generations.

The reason testamentary trusts are caught by the proposals is because they operate in a similar way to discretionary trusts created in the person’s lifetime.

So why isn’t it all bad?

Firstly, the reforms are proposed, and they are not legislated yet. The reform is open to feedback, and plenty of practitioners are raising concerns to the Government as to the reach of the proposed reforms, and the impact the reforms will have on everyday Aussies who are using testamentary trusts.

So what now?

Now, although the reforms are only in the proposal stage, families or individuals who have testamentary trusts within their estate planning, should consider at the very least a review, because if the proposed reforms do come into legislation, the proposals may affect:

• The overall tax paid by beneficiaries after death;
• The way income is distributed through testamentary trusts;
• Existing family trust and “bucket company” arrangements linked to estate plans;
• Business succession planning for family-owned enterprises; and
• The long-term asset protection benefits currently achieved through trust structures.

For some Aussie families, existing wills may still be appropriate with only minor amendments. For others, particularly those with larger estates, family trusts, investment portfolios or private companies, more substantial restructuring may be appropriate to consider before the new rules take effect.

The proposed reforms are also a timely reminder that estate planning should be reviewed on a regular basis, particularly when there are major tax or legislative changes. A will prepared years ago may no longer achieve the same outcomes intended at the time that it was signed.

Has this article prompted questionsfor you? Would you like to discuss your Will and Estate matters with one of our experienced Wills and Estates Team? Call us today or click here to request an appointment.

Article by Sarah Khan
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