Estate Planning After the Budget - A Whole-of-Wealth Approach

Wills and Estates: 13 May 2026

Author: Caroline Harley - Our People

The Federal Budget represents a significant shift in how Australians will approach intergenerational wealth transfers. For decades, discretionary family trusts have been central to tax planning and asset structuring for business owners, professionals, investors and farming families - not just as holding vehicles, but as tools for controlling how wealth is taxed and passed on. That era is changing.

The proposed reforms materially alter the tax treatment of both inter vivos discretionary family trusts (established during life) and discretionary testamentary trusts (established under a will after death), while leaving self-managed superannuation funds (SMSFs) and deceased estates untouched. The result is not the removal of trusts, but the removal of their key advantage: tax-driven flexibility.

With more than one million trusts in Australia, these changes mark a structural shift in how intergenerational wealth will be managed in future.

Discretionary Family Trusts (During Life)

Historically, discretionary family trusts allowed income to be earned in the trust (from assets and investments) and distributed at the trustee’s discretion. This enabled families to allocate income across beneficiaries on lower marginal tax rates rather than concentrating income in a single taxpayer. 

Under the proposed reforms, this flexibility is materially reduced. From 1 July 2028, distributions to adult beneficiaries are expected to face a minimum 30% tax outcome (at the trustee level, but in practice an adult beneficiary on a lower rate than 30% will not receive a refund of the excess tax paid), limiting income minimisation strategies. Discretionary trusts are therefore shifting away from tax planning vehicles toward structures primarily used for control and asset protection/segregation.

Discretionary Testamentary Trusts (After Death)

Discretionary testamentary trusts have traditionally also had the same flexibility into the post estate administration phase, allowing income to be distributed across beneficiaries over time including concessional tax treatment for minors that would otherwise attract the punitive rates applicable to minor beneficiaries in inter vivos trusts.

These advantages are now expected to fall within the minimum tax regime, significantly reducing their role as post-death tax planning tools.

The more important shift is structural. Estate planning can no longer rely on a single vehicle to deliver tax efficiency. It must be designed as a coordinated system across entities, balancing tax, control and succession outcomes over time.

Fixed Testamentary Trusts

Fixed trusts and fixed testamentary trusts remain excluded from the proposed changes. They provide defined entitlements to beneficiaries, offering greater tax certainty. However, they are less commonly used than discretionary testamentary trusts.This certainty comes with a trade-off: lack of flexibility and asset protection. Fixed entitlements can be more exposed in bankruptcy, relationship breakdown and creditor claims. The choice is increasingly between certainty on tax outcomes and strength in asset protection.

Self-Managed Superannuation Funds (SMSFs)

SMSFs remain unaffected by the trust reforms and continue to be a cornerstone of tax-effective retirement planning.

Key features include:

• 15% tax on earnings in accumulation phase
• 0% tax on earnings in pension phase (within limits)

1/3rd CGT discount for disposal of CGT assets held for at least 12 monthsHowever, SMSFs operate within defined constraints:

• Transfer Balance Cap (~$2.1m from 1 July 2026) limits tax-free pension balances
• Total Superannuation Balance rules restrict contribution strategies above thresholds
• Division 296 (from 1 July 2026) imposes an additional 15% tax on earnings attributable to balances above $3 million

Superannuation remains highly tax-effective but increasingly governed by thresholds and limits.

Deceased Estates

The income earned in deceased estates during estate administration (not including discretionary testamentary trusts that are established) are also excluded from the proposed changes. Existing tax rules continue to apply, preserving their role as transitional structures managed by executors before final distribution.

The Key Shift is Thinking in Systems

The key change is not the removal of structures, but the need to think in terms of an integrated system:

• Discretionary trusts: control and asset protection, not tax efficiency
• Testamentary trusts: reduced tax role, ongoing succession planning tool
• Fixed trusts: tax certainty with lack of protection and flexibility
• SMSFs: tax-efficient accumulation vehicle within limits
• Deceased estates: stable and unchanged

This creates both complexity and opportunity. Wealth planning must now be coordinated across multiple structures rather than optimised within a single structure.

Companies

Company structures remain part of the broader structuring toolkit and can be used to hold assets or investments, particularly where the ability to utilise franked dividends offers tax efficiency benefits.

However, companies also carry important limitations. Assets held within a company are generally exposed to business risk and creditor claims, and do not benefit from the same structural separation of legal and beneficial ownership that trusts can provide. This exposure can be amplified where individuals hold shares directly, as the value of their personal wealth may be tied to a single corporate vehicle that may be vulnerable.

Conclusion

This Budget does not end trust planning. But it is ending the reliance on trusts as standalone tax engines. What replaces it is a far more deliberate framework where superannuation, lifetime structures and estate planning must operate together as part of a coordinated system not isolated strategies designed in silos.

In this environment, the quality of outcomes will increasingly depend on the quality of advice. Effective estate planning is no longer about applying generic structures or off-the-shelf solutions. It requires careful design based on each family’s specific circumstances including business interests, asset base, family dynamics, risk exposure and long-term objectives.

This is where specialist legal advice becomes critical. Professionals who focus on estate planning and wealth structuring can help ensure that legal, tax, control and protection considerations are properly aligned across all entities, rather than optimised in isolation.

Ultimately, the shift is not just toward more complex rules it is toward more personalised planning. Family wealth takes decades to build, and the right advice can help protect and preserve it for decades to come. Those that engage the right advisers will be better placed to build structures that are not only tax-aware, but resilient, coordinated and fit for purpose across generations.