There has been a lot of discussion recently about the Federal Government’s proposed tax changes for discretionary trusts, including Testamentary Trusts. Unsurprisingly, many people are now asking whether Testamentary Trusts are still worth including in their wills.
The short answer? Absolutely.
While tax planning has always been one benefit of a Testamentary Trust, it has never been the only reason (or even the most important reason) families choose to use them.
At their core, Testamentary Trusts are about protection.
What Is a Testamentary Trust?
A Testamentary Trust is a trust created under your will that only comes into effect after you pass away.
Rather than leaving an inheritance directly to a beneficiary, assets can instead be held within the trust and managed by trusted people for the benefit of your loved ones.
Importantly, if you want the option of using a Testamentary Trust, it must be included in your will before you die.
The Proposed Tax Changes Are Not Yet Law
The recent announcements about trust taxation are just that – announcements.
The proposed changes are intended to apply from 1 July 2028, but there is still a long legislative process ahead, including consultation, industry feedback, and drafting of legislation. We have also seen similar proposals in the past that never became law.
There is still significant uncertainty around how the rules may ultimately look, particularly in relation to children and vulnerable beneficiaries.
Testamentary Trusts Offer So Much More Than Tax Benefits
Even if the tax rules change, Testamentary Trusts remain one of the most flexible and protective estate planning tools available.
Protecting Young Children
For parents of young children, a Testamentary Trust can provide enormous peace of mind.
It allows you to:
- protect your children’s inheritance if your surviving spouse later re-partners;
- reduce the risk of inherited assets being lost in family law proceedings;
- protect assets from creditors or legal claims;
- choose the age your children receive control of their inheritance; and
- avoid children receiving large sums of money at age 18 before they are financially mature.
Protecting Adult Children
Many people are also surprised to learn how valuable Testamentary Trusts can be for adult children.
A Testamentary Trust can help:
- protect inheritances if a child separates from their partner;
- safeguard assets from creditors or business risks;
- preserve wealth for future generations; and
- provide structure and long-term protection for family wealth.
Supporting Vulnerable Beneficiaries
Testamentary Trusts can also be incredibly important where a beneficiary is vulnerable due to disability, illness, addiction, impaired capacity, or difficulty managing money.
Rather than receiving an inheritance outright, assets can remain protected within the trust and managed by trusted decision-makers for the beneficiary’s ongoing care, wellbeing, and financial security.
For many families, this type of protection is far more important than tax outcomes alone.
Flexibility Is Key
At Nurture Law, the Testamentary Trusts we prepare are designed with flexibility in mind.
This means your executor and loved ones can obtain legal, financial, and tax advice at the time of your death and decide whether establishing the trust is appropriate based on the law and circumstances at that time.
If the trust remains beneficial, the option is there.
If circumstances change and the trust is no longer needed, your loved ones are not locked into using it.
Estate Planning Is About More Than Tax
When people hear discussions about tax changes, it can be easy to lose sight of the bigger picture.
Good estate planning is not simply about minimising tax. It is about protecting the people you love, preserving family wealth, reducing risk, and creating stability for future generations.
Testamentary Trusts continue to play a powerful role in achieving those goals.
If you would like advice about whether a Testamentary Trust is appropriate for your family, we would be happy to help.
