Key takeaways
- A proposed 30% minimum tax on discretionary and testamentary trust income could mean income can't be split around the family as easily.
- Trusts are still incredibly valuable — particularly where control, asset protection and family complexity matter.
- Estate plans built purely around tax benefits are on shaky ground — the better question is: what are you actually trying to do for your family?
- How your money is invested can be just as important as the structure it sits in.
- There is no longer a one-size-fits-all solution — investment bonds, planning while you're still alive, and targeted structures are all worth considering.
For years, Australians have been told the same thing when it comes to passing on wealth: set up a trust. It's neat, it's flexible and importantly it's been tax effective.
Or at least, it was.
Because after the latest Federal Budget (May 2026) proposed changes, a lot of those plans may not work the way people think they do anymore, if all proposed changes are passed.
What's changed and what it means
At the centre of it all is a proposed 30% minimum tax on discretionary and testamentary trust income. Now, that might sound like technical tax jargon — the sort of thing most peopleswitch off from — but the real-world impact is simple.
It means income can't be splitaround the family as easily. It means lower-income beneficiaries may lose theadvantage they once had. Trusts are still incredibly valuable —particularly where control, asset protection and family complexity matter.
The bigger issue: are you asking the right question?
The bigger issue isn't just the tax change itself. It's the way many estate plans were set up in the first place.
For years, people have asked the same question: "How do I pay less tax?"
But that's the wrong place to start.
The better question — and the one that matters now more than ever — is: "What am I actually trying to do for my family?"
Because tax is only one piece of the puzzle. And if your entire strategy relies on the tax rules staying the same, you're building on shaky ground. As we've just seen, those rules can and do change.
Why investment strategy matters as much as structure
What often gets overlooked is that how your money is invested — and how it flows through to the next generation — can be just as important as the structure it sits in.
A well-thought-out investmentstrategy doesn't just focus on returns today. It considers what happens overtime, and ultimately, what lands in the hands of your beneficiaries.
For example, assets held within a trust still rely on how they are invested.
A poorly constructed portfolio can:
- Erode value over time
- Create unnecessary volatility
- Undermine the very outcome the structure was designed to achieve
Whereas the right investment approach can:
- Deliver sustainable income
- Preserve and grow capital
- Support multiple beneficiaries over time
In other words, the structure sets the framework, but the investment strategy still does the heavy lifting.
And when you combine the two properly, that's where real intergenerational wealth planning starts to take shape.
What are the alternatives?
None of this means trusts have lost their place — far from it. They remain one of the most powerful structures available, particularly for families who value control, protection and flexibility across generations.
But using a trust purely for tax benefits? That's a much harder argument to make.
So where does that leave people?
It's not about throwing everything out and starting again. It's about broadening the way we think.
Investment bonds
One option that's becoming more relevant is the investment bond. These are often overlooked, but they many people are now looking for: simplicity and certainty. Tax is paid internally, and if held long enough, there may be no additional personal tax. There's no annual reporting burden, and they can often be passed directlyto beneficiaries.
In other words, fewer moving parts. And when it comes to estate planning, that can be a big advantage.
An investment bond may not just be about tax treatment. It can also provide a clean and efficient transfer of wealth, where the underlying investments can remain intact and continue to grow in the hands of the next generation — without disruption, forced sales, or complex administration.
Planning while you're still alive
Another shift is morefundamental. Instead of focusing only on what happens after you're gone, morefamilies are starting to think about planning while they're still alive.
This is particularly important where there are vulnerable beneficiaries involved. Relying on a complex structure in the future can create uncertainty, especially if laws change again or circumstances evolve.
In some cases, putting the right arrangements in place now can be simpler, clearer and far more effective thanleaving everything to be sorted out later.
Targeted structures for specific needs
There are also more targetedoptions available, such as structures designed specifically to support individuals with disabilities, offering both protection and certainty that funds will be used as intended.
A more layered approach to estate planning
What's becoming clear is thatthere's no longer a one-size-fits-all solution.
Where a trust may have once donethe job on its own, today's planning is more layered. It's about using theright structure for the right purpose — whether that's maintaining control,simplifying administration, supporting beneficiaries, or managing tax outcomesin a more balanced way.
And perhaps the most importantchange is this: estate planning is becoming less about clever strategies andmore about clear intent.
- What do you actually want to achieve?
- Who needs to be looked after?
- How simple can you keep things for the people you leave behind?
Because at the end of the day, that's what really matters.
The rules will continue to change, they always do. But a plan built around clear objectives, rather thanjust tax outcomes, is far more likely to stand the test of time.
And when the time comes, the last thing any family needs is to deal with a structure that no longer worksthe way it was intended.
It's not about having the most sophisticated plan. It's about having one that still works when it matters most.
Frequently asked questions
Has the Federal Budget changed how trusts work for estate planning?
The May 2026 Federal Budget proposed a 30% minimum tax on discretionary and testamentary trust income. Thismeans income can't be split around the family as easily and lower-incomebeneficiaries may lose the advantage they once had. These changes are subject to parliament passing them in their current form.
Are trusts still worth having after the proposed changes?
Trusts are still incrediblyvaluable — particularly where control, asset protection and familycomplexity matter. The harder argument is using a trust purely for taxbenefits, as that rationale is now much weaker if the proposed changes proceed.
What is an investment bond and why is it relevant now?
Investment bonds offersimplicity and certainty — tax is paid internally, and if held long enough,there may be no additional personal tax. There's no annual reporting burden andthey can often be passed directly to beneficiaries, meaning fewer moving partscompared to a trust structure.
Does the investment strategy inside a trust or structure matter?
Yes. How your money is investedcan be just as important as the structure it sits in. The structure sets theframework, but the investment strategy still does the heavy lifting. Apoorly constructed portfolio can erode value, create unnecessary volatility,and undermine the very outcome the structure was designed to achieve.
What should I be asking about my estate plan right now?
The most important question isnot "how do I pay less tax?" but rather "what am I actuallytrying to do for my family?" A plan built around clear objectives — ratherthan just tax outcomes — is far more likely to stand the test of time as ruleschange.
Are there options for beneficiaries with disabilities?
Yes. There are targetedstructures designed specifically to support individuals with disabilities,offering both protection and certainty that funds will be used as intended.Speaking to a Morgans adviser can help identify the right approach for your situation.
Conclusion
The rules will continue to change — they always do. But a plan built around clear objectives, rather than just tax outcomes, is far more likely to stand the test of time. And when thetime comes, the last thing any family needs is to deal with a structure that no longer works the way it was intended.
It's not about having the mostsophisticated plan. It's about having one that still works when it mattersmost.
Speak to a Morgans adviser toreview your estate plan and make sure it still achieves what you intend.
Footnote: Government budget proposals are subject to review and passing throughparliament and therefore subject to change.
