There has been significant attention in the media and the professional services world on the Federal Government’s proposed changes to the taxation of discretionary trusts, under which the government is seeking to enact a new 30% minimum tax targeting discretionary trusts. We explore this in A 30% minimum tax on discretionary trusts: time to reconsider long-held assumptions?
Amongst the trusts that could be affected by the changes are Will-based testamentary discretionary trusts (TDTs). While the government has announced that TDTs will be excluded from the tax, the recent introduction of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (Cth.) into Parliament puts most TDTs currently drafted at risk of failing to qualify for the exclusion.
The Hamilton Locke Private team have lodged a submission to the Senate Standing Committee on Economics in advance of the Committee’s public hearings scheduled for 5 and 6 November 2026. Our submission raises our key concerns about the unnecessary but significant impacts on the public who have prepared wills containing TDTs which are likely to fail to meet the requirements of the legislation.
Impacts on testamentary discretionary trusts
TDTs are used in Wills for a variety of purposes:
- For appropriately structuring and protecting wealth for minor beneficiaries, including beneficiaries with disabilities.
- To protect adult beneficiaries with disabilities, addiction-related disorders, or inadequate ability to manage their own finances.
- To provide asset protection for beneficiaries.
- To create an inheritance that has intergenerational benefits.
TDTs are not a vehicle or structure only used by the wealthy. They are a common and essential part of estate planning for a variety of different family circumstances.
The key issues identified by the Hamilton Locke Private team in their submission are:
- The requirement that a TDT be incapable of distributing to companies or trusts means that most TDTs currently drafted will fail to meet the conditions for their income to be excluded from the 30% minimum tax. It has been common practice for decades for a testamentary trust to be capable of benefitting companies and trusts, and most TDTs are drafted in this way. The current proposed legislation may mean that nearly all wills containing TDTs need to be amended to avoid the application of the 30% minimum tax.
- People who have lost testamentary capacity since making their will cannot update their wills to avoid the 30% minimum tax. The only option for the families of these individuals is an expensive court application to make a statutory or court-ordered will.
- It is insufficiently clear whether an amendment can be made after death to ensure the TDT beneficiary class meets the proposed requirements . The legislation should clarify whether amendments made after death, but before the TDT is established, will allow a TDT to meet the conditions for exclusion from the minimum tax.
- The meaning of when a TDT is ‘established’ is unclear. Families dealing with estates of persons who pass away prior to 1 July 2028 will face significant uncertainty about how their TDT will be taxed, as there is no clear legal test for defining when a TDT is established.
Key considerations for private clients
Those concerned about the impact of the proposed changes on their wills should keep up to date with the progress of the legislation through Parliament. However, at this stage the legislation is not enacted, and may be amended before it is passed. Therefore, changing your estate planning documents now may not ultimately be necessary.
Further, the current legislation only applies to TDTs established on or after 1 July 2028. While there is uncertainty about the meaning of established, TDTs that are clearly operational before that date do not need to restrict their beneficiary class to qualify for the exclusion from the minimum tax.
If you are in the process of making your wills, it may be prudent to consider limiting the potential beneficiary class in your TDT to individuals, exempt entities, and trustees of a special disability trust. If the legislation is not enacted with the current restrictions, a further update to your will can be made if you desire an expanded class of beneficiaries (including trusts and companies if you wish).
Where amendments are being made to wills, these are likely to be complicated and technical. We recommend against trying to amend your wills without a lawyer, including by using AI or purchasing a wholesale solution. Hamilton Locke Private will assist current and new clients to ensure that your wills are valid and effective in light of the new legislation.
In the meantime, the Hamilton Locke Private team will continue to monitor the legislation and advocate on these important issues.
Please contact Brett Heading, Fran Becker, Jamie Blair, Penelope Nicholls and Jack Conway if you wish to know more.
