Hill Warns Testamentary Trust Tax Change Widen Battleground
Alun Hill says Labor’s proposed 30 per cent minimum capital gains tax would make the testamentary trust a sharper fault line in estate fights from July 1, 2028. For families expecting assets to pass through the most common estate-planning trust, the change could leave less to distribute and more room for objections.
“It widens the battleground,” said Hill, the national director of the contested estates division at Armstrong Legal. He said the new tax floor would be joined by a higher capital gains tax on assets, and that combination would give relatives more reason to challenge a will.
July 1, 2028 and family disputes
The slated changes would come into effect on July 1, 2028, after the government’s legislation on trust tax changes is brought before parliament later this year. Hill said the proposal would apply to the most common form of estate planning trust, the testamentary discretionary trust, while specifically excluding fixed testamentary trusts.
Fixed trusts do not allow trustees to change the proportion of income a beneficiary is entitled to. Hill said discretionary trusts have traditionally been used to give trustees the flexibility to carry out the intentions of the testator, and that flexibility is part of what the budget proposal would now pressure.
Hill on contested estates
“It just creates more reason why there might be someone who wants to contest a will,” Hill said. He warned that the lower after-tax outcome could trigger claims against an estate by a spouse or an intended beneficiary if they are no longer receiving adequate or appropriate provision under the testamentary trust.
He also said regular Australian families are likely to be the ones mostly captured by the new rules. “The ones who won't are probably the middle class. People who leave an estate with one or two properties, some shares in a portfolio and some money in a term deposit – those are the ones who are probably not going to undergo complex estate planning,” Hill said.
Trillions of dollars ahead
Australians are expected to pass on trillions of dollars in assets in the coming years, and Hill said that scale will keep lawyers, tax accountants, financial planners and business and property valuers busy. He said the wealthiest individuals will continue to find workarounds and exotic structures to minimise tax, while ordinary estates are more likely to feel the pressure first.
“What this really does is create the potential for claims being made against the estate by the spouse or by whoever the intended beneficiary is, who is no longer receiving adequate provision or appropriate provision under the testamentary trust,” Hill said. For families drawing up wills now, the practical issue is not the label on the trust but whether the rules that apply to it will cut the amount that eventually lands in a beneficiary’s hands.
