Discretionary Trust Update

Governance over Tax

Trusts Aren’t Dead — But the Reason You Have One Just Got More Important

Back in May, the Federal Budget proposed a 30% minimum tax on discretionary trusts, and much of the commentary rushed to declare trusts finished.

We took a different view. We argued the debate was blurring two very different things: discretion as tax engineering — streaming income to low-tax beneficiaries — and discretion as governance — control, protection, staged release and flexibility over decades.

On 18 June 2026, the Government effectively conceded that distinction. It confirmed that discretionary testamentary trusts — those created inside a Will for “genuine testamentary purposes” — would be exempt from the proposed 30% minimum tax, a material shift from the original Budget position. Treasury released a consultation paper on the detail in July.

(Fixed testamentary trusts were never caught — the measure only ever applied to discretionary trusts. The concession is specifically about discretionary testamentary trusts.)

Four things worth understanding:

• Discretionary testamentary trusts just became more valuable. Properly structured, they may deliver tax outcomes no other structure can replicate.
• The exemption is narrower than “discretionary testamentary trusts are exempt.” It is proposed to apply only to income from assets of the deceased estate — so topping up a discretionary testamentary trust with outside assets may not qualify.
• Inter vivos (the standard family trust set up during your lifetime) discretionary  trusts  remain fully in scope. The 30% minimum tax still applies from 1 July 2028, with a three-year rollover relief window opening on 1 July 2027.

• There’s a subtle trap in the timing — and it’s not yet settled. A discretionary testamentary trust isn’t “established” when you sign your Will; it only comes into being when you die. Because there’s still no draft legislation — only a July consultation paper — it isn’t yet clear how the “established from 1 July 2028” line will treat trusts created by Wills signed today. Existing Wills with broad beneficiary classes (companies, other trusts) may need review as the integrity rules emerge.

Look closely at the qualifying test. “Genuine testamentary purposes” is itself a governance test — structures built to protect wealth across generations qualify; those built primarily to shift tax may not.

→ Our read: The tax conversation gets the headlines. The governance conversation is the one that compounds.