What the 2026 Federal Budget Means for Wills and Estate Planning in Australia

The 2026–27 Australian Federal Budget has put estate planning back in everyday conversation. Headlines mention testamentary trusts, discretionary trusts, and phrases like “death tax” or “inheritance tax”, often without explaining what they mean for a typical household.

Will Hero provides general information and online Will preparation tools; we are not a law firm or financial adviser. This article was published and last updated for general Australian jurisdiction context on 19 May 2026. For trust tax detail, rely on current government guidance and your own professional advisers.

Why estate planning is suddenly back in the news

After the 2026 Federal Budget, accountants, lawyers, financial advisers, and the media have been discussing proposed changes to how some discretionary trusts are taxed.

Testamentary trusts (trusts created through a Will after someone dies) have attracted extra attention as part of that wider conversation. For many Australians, this may be the first time they have seen these terms in mainstream coverage.

That has also fuelled confusion online, especially around labels such as:

• “death tax”
• “inheritance tax”
• “trust tax”

The discussion is mainly about announced proposals for trust taxation, not a new tax on inheritances received outright. A deceased estate during administration is not the same as a testamentary trust under a Will, and neither is the same as a family discretionary trust set up during your lifetime.

For most people, the practical takeaway is simpler: check whether your current Will still matches your wishes, who your beneficiaries are, and whether super nominations and property titles still line up with your life today. See how to make a legally valid Will in Australia if you are starting from scratch.

What the Budget is actually talking about (Trust tax, not inheritance tax)

Budget announcements are not law. The measures below were announced in the 2026–27 Federal Budget and would need to pass Parliament before they take effect; details may change materially.

A major part of the discussion is a proposed minimum tax framework for some discretionary trusts, intended to apply from 1 July 2028 if legislation passes. The announced framework proposes changes to how income distributed through some discretionary trusts may be taxed compared with current arrangements. Government materials describe a proposed 30% minimum tax mechanism involving trustee-level taxation and related beneficiary credit arrangements, subject to legislation and detailed rules not yet final. That is not the same as taxing someone because they inherited a house or received a cash legacy from a deceased estate.

Announced materials propose excluding some categories from that framework, subject to detailed rules in any enacted law:

• certain deceased estates during administration
• complying superannuation funds
• some testamentary trust arrangements (eligibility would depend on drafting and future law, not a blanket exemption)
• proposed transitional treatment for some pre-existing testamentary trust arrangements, as described in the ATO overview

Sources and legislative status

This article reflects publicly announced 2026–27 Budget measures and ATO materials as at 19 May 2026. Proposed tax measures may change before legislation is passed. For primary-source context (not legal advice), see the ATO overview of the minimum tax on discretionary trusts.

What is a testamentary trust?

A testamentary trust is a trust created by your Will after you die.

Rather than transferring everything directly to beneficiaries, some or all of the estate may be held and managed by a trustee for those beneficiaries, often with rules about income, capital, and who can benefit over time.

Testamentary trusts are discussed in estate planning because they can offer flexibility in how inheritances are managed, particularly where:

• beneficiaries are young or not ready to control large sums
• a blended family needs clear separation between a partner and children from another relationship (see our blended family Wills guide)
• a vulnerable beneficiary needs longer-term protection
• you want staged or supervised access to capital rather than a single outright gift

They are not included in every Will. They are generally more complex than a standard Will that names executors and pays residue to beneficiaries outright.

The recent Budget has increased public focus on testamentary trusts because proposed discretionary-trust tax changes may affect how some related structures are compared and reviewed. A testamentary trust under a Will is a different concept from a family discretionary trust set up during your lifetime. Do not assume they are taxed or regulated identically; get advice on your documents.

How common are testamentary trusts in Australia?

Precise counts of testamentary trusts are not published in the same way as broader trust statistics. They are far less common than lifetime discretionary trusts, but the Budget debate has still prompted many families to check whether an older Will includes trust wording they no longer understand.

Why many Australians are reviewing older Wills now

One practical impact of the Budget conversation may be simpler than trust law: more people are opening drawers and reading old Wills.

Many Australians make a Will once and rarely update it. Over years:

• partners, children, and dependants change
• assets grow (especially property and super)
• titles and nominations drift out of date
• earlier “mirror Wills” or trust clauses may no longer match what you would choose today

Media coverage of testamentary trusts can act as a prompt to ask: Does this Will still say what I want? Do I even understand the clauses in it?

That review is worthwhile even if you never use a trust. If you die without a valid Will, intestacy laws decide who inherits, not you. Superannuation death benefits are generally distributed according to fund rules, trustee discretion, and any valid binding nominations, rather than your Will alone.

With Australia’s great wealth transfer already underway, keeping documents current is less about reacting to headlines and more about protecting the people you intend to benefit.

Common misunderstandings after the Budget

“Has Australia introduced inheritance tax?”

No. Australia does not currently impose a general federal inheritance tax or estate duty of the kind often discussed overseas. Beneficiaries can still face other taxes in particular situations—for example, capital gains tax when some inherited assets are later sold, or tax on super death benefits depending on dependant status. See what happens to your superannuation when you die for more on super. That is not the same as an “inheritance tax” on everything you receive from an estate.

“Does every Will involve a testamentary trust?”

No. Most Wills used on Will Hero and in everyday practice distribute assets to named beneficiaries (with backups and specific gifts where needed). Testamentary trusts are an optional layer for more complex plans.

“Is this only relevant to wealthy Australians?”

Not necessarily. Estate planning matters wherever you have dependants, property, super, a business, or a blended family, regardless of whether a trust is involved. Budget headlines may focus on high-wealth trust strategies, but the reminder to have a clear, current Will applies broadly.

“Should I change my Will because of the Budget?”

It depends on your circumstances. You do not need a new Will simply because of media coverage. You may want a review if:

• your Will is more than a few years old
• you have married, separated, divorced, or had children since it was signed
• you are unsure whether your Will includes trust clauses you do not understand
• you already use, or were advised to use, a discretionary or testamentary trust structure

For complex structures, speak to a solicitor and, where appropriate, a financial adviser or accountant before amending documents.

When professional advice matters most

Professional advice is especially important where:

• you have a blended family or competing claims between a partner and children
• you run a business or hold assets in entities
• you have an SMSF or large super balances with outdated nominations
• you hold overseas assets
• your Will or deed of variation already establishes a testamentary or discretionary trust
• you are considering restructuring existing trusts in light of proposed Budget measures

Trust taxation is highly fact-specific. Do not establish, amend, or unwind trust structures based solely on general online commentary. A qualified adviser can explain how current law and announced proposals (if enacted) may apply to your structure, not generic social media summaries.

Will Hero helps many Australians prepare a straightforward, legally valid Will online with guided steps and visual tools. We do not provide personalised legal, tax, or financial advice, and we do not design bespoke trust structures. For trust planning, your professional team remains the right place to start.

Final thoughts

The 2026 Federal Budget has put estate planning language back on kitchen tables across Australia. Many people are hearing more about testamentary trusts, discretionary trusts, and announced proposals for how trust tax settings may change if legislation passes.

For some households, the useful outcome is not a rushed trust strategy. It is a calm check that your Will, super nominations, and property ownership still reflect your wishes and your family today. If you have been putting it off, see why you shouldn’t put off writing your Will.

If you want to create or refresh a straightforward Will online, Will Hero offers state-aware templates, guided questions, and visual planning tools. When your situation is more complex, use the Budget moment to book advice rather than guess from headlines.