The Budget has ramifications for discretionary testamentary trusts, effective from 1 July 2028. Most testamentary trusts are structured as “discretionary” trusts (as distinct from “fixed” trusts) as this gives asset protection and the potential to reduce income tax.
The proposed changes for discretionary testamentary trusts include the following:
- there will be a minimum 30% tax rate on the taxable income;
- the 30% tax will be paid by the trustee, with a credit passed on to the beneficiary to offset other tax liabilities in their own tax return;
- if the beneficiary’s tax rate is less than 30%, there is no refund of the 30% tax paid by the trustee.
There are some exemptions from these general provisions, and the media is already reporting that the Government may reconsider some of the announced changes, so the exact ramifications will not be known until draft legislation is released and passed by Parliament. That will take some time, which can make it difficult for:
- clients wondering whether to make a Will that includes discretionary testamentary trust provisions;
- estate beneficiaries who are faced with the choice of whether or not to utilise a testamentary trust where an option has been provided in the Will; and
- trustees of existing testamentary trusts considering whether to acquire new assets.
It has been widely reported that the only options families will have are to choose between a lower taxation saving under the new rules or making a Will in traditional “standard” form where beneficiaries personally receive their inheritance. In our opinion, this is not an accurate summary of the full position, for two reasons:
- Firstly, if a Will does not set up a trust, all the income generated from the inheritance will be included in the beneficiary’s own tax return, with no ability to allocate or stream income to other family members or related entities. For a beneficiary whose other income already puts them at or near the top marginal rate, this could result in all the income from investing the inheritance being taxed at 45%.
- Secondly, testamentary trusts provide well known important benefits (plus one commonly overlooked benefit) other than potential tax savings.
The well-known important benefits are excellent asset protection from creditors and some protection from a family law dispute.
The commonly overlooked benefit is the bloodline inheritance protection that testamentary trusts can provide.
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How we can help…
While the proposed rules may reduce the tax benefits of testamentary trusts in some circumstances, it is important not to lose sight of the “non-tax” benefits they provide.
We specialise in creating trusts that are tailored to client’s specific objectives. These may be the bloodline trust referred to above, fixed trusts, protective trusts or special disability trusts for vulnerable beneficiaries and flexible testamentary trusts which provide asset protection generally and the ability to reduce tax in an appropriate manner.
Importantly, our Wills can be drafted to give the intended beneficiary the ability to request to opt out of using a testamentary trust if there would be no advantage for them in using one.
While we wait to see exactly what changes will be implemented, we can continue to prepare Wills and implement estate planning strategies that suit the needs of our clients and their families.
Challenging an Enduring Power of Attorney in Victoria
In Victoria, an enduring power of attorney allows a person to appoint one or more attorneys to make financial and/or personal decisions on their behalf. Attorneys must act honestly, diligently, in good faith, avoid conflicts of interest, keep proper records, and act in accordance with the principal’s wishes and interests.
We are often approached by clients concerned about the actions of the attorney for their parent or other family member. Concerns might relate to misuse of money, unexplained transactions, poor record-keeping, pressure or undue influence, conflicts of interest, or decisions that do not appear to be in the best interests of the incapacitated person.
If there are concerns that an attorney is acting improperly, an application for review can be made to the VCAT Guardianship list. VCAT can make orders requiring the attorney to provide accounts or records, suspend or revoke an appointment, appoint an administrator or guardian, or make other protective orders. VCAT can also consider whether the enduring power of attorney was validly made, including whether the principal had capacity at the time and whether the document was properly signed and witnessed.
Parties are usually expected to represent themselves in VCAT proceedings. Legal costs are not automatically awarded. Usually, each party pays their own costs, but VCAT may order costs where it is fair to do so, including where a party has acted unreasonably, caused unnecessary delay, or conducted the proceeding improperly.
Given the complexity, importance, and significant financial value of many matters that now appear before VCAT, a practical option is to have legal professionals draft or settle the VCAT application, supporting material and proposed orders, while the applicant represents themselves at the hearing. This can help ensure the application is properly prepared and focused, while keeping the costs down.
We can assist you to prepare a VCAT application or, if you are the attorney, help you to respond to any VCAT application issued by someone else.
Anti-Money Laundering & Counter-Terrorism Financing Laws
From 1 July 2026, Australia’s Anti-Money Laundering and Counter-Terrorism Financing regime (AML/CTF) will apply to legal practices that provide certain designated services, which includes property and conveyancing transactions.
Affected lawyers are required to register with AUSTRAC and develop compliance programs – including verifying a client’s identity, understanding the purpose of a transaction, and assessing any level of risk.
We will have obligations under the new regime and have already completed the necessary steps to ensure we comply with this important legislation.
Our clients may notice even more robust identification procedures being undertaken at the commencement of their property transaction, or at the commencement of any other matter which falls under the AML/CTF legislation.