Australian Budget trust changes: before you unwind a trust, remember why it exists
The 2026–27 Federal Budget has placed discretionary trusts firmly in the spotlight.
The Government has announced a proposed 30% minimum tax on discretionary trusts from 1 July 2028. Under the proposal, the trustee would pay the minimum tax, while beneficiaries would still declare trust income in their own tax returns. Non-corporate beneficiaries are expected to receive non-refundable credits for tax paid by the trustee. Corporate beneficiaries would not receive those credits.
The announcement has understandably caused concern for business owners, family groups and advisers. Recent commentary has also focused heavily on whether the proposed measure may affect testamentary discretionary trusts and succession structures, with some criticism characterising the proposal as a form of “death tax”.
That debate reinforces the need for careful advice.
The better question is not whether trusts are “good” or “bad”. The better question is whether a particular trust remains suitable having regard to its tax profile, asset protection role, succession purpose, control mechanisms and family governance function.
A trust is not simply a tax device. For many families and businesses, tax efficiency may have been one advantage of using a trust. But it is rarely the only reason — and in many cases it is not the most important reason.
Trusts serve different purposes
Not every trust is established for the same reason.
Some trusts are used to hold passive investment assets. Some are used in family business structures. Some are used to quarantine trading risk from valuable assets. Some are used to separate business operations from intellectual property. Others are used to build and preserve wealth in a vehicle that can be passed from one generation to the next.
The Budget papers themselves recognise that trusts, including discretionary trusts, can assist with asset protection and succession planning, even while the Government’s stated policy focus is income splitting.
That distinction matters.
A trust may now be less attractive for one objective, but still valuable for another. A change in tax treatment may alter the cost-benefit analysis, but it does not automatically mean the structure has failed.
Start with the “why”
The first question should not be: “Should we get out of our trust?”
The first question should be: “Why do we have this trust in the first place?”
For some clients, the answer may be tax flexibility. For others, it may be risk management, succession, asset protection, control, estate planning, family governance, or the ability to hold assets outside an individual’s personal name.
If the core purpose of the structure was to quarantine risk, separate assets from trading operations, preserve family wealth, or support intergenerational succession, those benefits may remain highly relevant.
The decision to structure with a trust, or to restructure out of a trust, should always be driven by the client’s objectives and commercial realities — not by alarmist headlines.
Restructuring may be available - but it is not automatically the answer
The Government has indicated that rollover relief will be available for three years from 1 July 2027 to assist small businesses and others who wish to restructure out of discretionary trusts into arrangements such as companies or fixed trusts.
However, the scope, conditions and practical mechanics of that relief remain subject to consultation, and draft legislation has not yet been released.
That means there is a planning window — but not a reason to panic.
For some groups, restructuring may be sensible. For others, retaining the trust and improving how it operates may be more appropriate. For others again, the right answer may be a combination of trust deed upgrades, corporate restructuring, succession planning, asset segregation and tax advice.
The wrong answer is to make a drastic decision without understanding the legal, tax, asset protection, duty, CGT, control and succession consequences.
Many trust deeds need attention anyway
This announcement is also a timely reminder that many trusts established decades ago have not been reviewed or refreshed.
A trust may be technically valid but commercially outdated. The deed may not reflect the current family, current assets, current business operations, current tax environment, succession objectives or modern drafting standards.
In some cases, the more immediate issue is not whether the trust should exist, but whether the deed is fit for purpose.
A trust deed review may reveal issues with appointor succession, trustee powers, streaming provisions, income definitions, vesting dates, beneficiary classes, amendment powers, control on death or incapacity, foreign beneficiary risks, family law exposure or succession pathways.
In that sense, the Budget announcement should prompt a broader structural review — not simply a tax reaction.
Estate planning documents should be reviewed
For clients whose wills establish testamentary discretionary trusts, the proposed rules may affect the expected tax profile of those structures.
That does not necessarily mean testamentary trusts should be removed from wills. Testamentary trusts may still provide important benefits, including asset protection, control, family law risk management, protection for vulnerable beneficiaries and intergenerational succession planning.
However, wills may need more flexible drafting.
For example, it may be appropriate to include powers that allow executors to direct assets to a testamentary trust, fixed trust, existing family trust, inter vivos trust, company or other structure where appropriate, having regard to the tax, legal and commercial circumstances at the time of death.
The key is flexibility. Estate planning documents prepared today need to operate in the tax and family circumstances that exist at the date of death — not merely the circumstances that exist when the will is signed.
Accountants are critical - but this is an advisory team issue
Accountants will be central to modelling the tax impact of the proposed changes. That analysis is essential.
But trust structure decisions are not purely tax decisions.
The right advice may require input from tax advisers, lawyers, accountants, corporate advisers and, where relevant, financial advisers. The legal terms of the trust deed, the asset profile, business risks, estate planning objectives, control mechanisms and commercial pathway all matter.
A sensible review should consider:
1. why the trust was established;
2. what assets or business interests it holds;
3. whether the deed is current and flexible;
4. who controls the trust now, and who will control it on death or incapacity;
5. whether the trust still supports the client’s commercial and family objectives;
6. whether restructuring would create more risk than it solves;
7. whether a deed upgrade, succession plan or broader structural refresh is preferable; and
8. whether wills, powers of attorney, company documents and trust succession arrangements remain aligned.
Our Takeaway
The Budget proposal is significant. It may alter the tax profile of many discretionary trusts. It may also make companies or fixed trusts more attractive for certain structures.
But it does not mean every trust should be abandoned.
Trusts are used for many reasons. Tax treatment is one part of the analysis — not the whole analysis.
The right response is not panic, but review.
Trusts should now be assessed through a combined legal, tax and succession lens: what does the trust hold, why was it established, who controls it, what does the deed allow, what tax impact may arise, and what would be lost if the structure were unwound?
Before making any major decision, clients should understand why their trust exists, what it still protects, what it enables, and whether the structure remains commercially and legally fit for purpose.
If you are now looking at your structure and wondering whether the proposed tax changes are a detriment — or whether the broader benefits of your trust still stack up — now is the time to obtain advice.
At AJ & Co, we can work with you and your accountant to review your trust deed, clarify the purpose of your structure, identify risk areas, and consider whether a trust upgrade, restructure or broader succession plan is the right next step.
Authored by Christie Gardiner, Private Advisory - Wills & Estates
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