New Australian federal budget changes to trust taxation are altering how families manage inheritances and estate planning [2].
These changes matter because they affect testamentary trusts, which are often used to protect assets for beneficiaries. The shift in tax treatment may reduce the financial benefit of these structures, forcing families to reconsider how they distribute wealth across generations [1, 2].
Brent Murphy, a partner at KPMG, said the changes will have a profound effect on testamentary trusts and change the way that estate planning is done [1]. While some critics describe the measure as a stealthy new "death tax" that deals a blow to grieving families, Murphy said he offered a different perspective on the terminology [1, 2].
Murphy said, "I’m not sure I’d call it a death tax in the sense that it applied to all trusts going forward" [1].
The debate centers on whether the tax is a broad inheritance levy or a specific adjustment to trust rules. Critics said the Albanese government buried the measure in the budget to avoid public scrutiny [2]. The government introduced the changes to raise revenue, which has prompted a backlash from those who believe it penalizes families during a time of loss [2].
Estate planners are now reviewing how these rules apply to different trust types. Because the changes specifically target the way trusts hold and distribute assets, the impact varies depending on the structure of the estate [1].
“It’s certainly going to have a profound effect on testamentary trusts and change the way that estate planning is done.”
The controversy highlights a tension between government revenue goals and the traditional use of testamentary trusts for wealth preservation. By altering the tax advantages of these trusts, the Australian government is effectively shifting the cost of inheritance, which may lead to a broader decline in the use of complex trust structures for middle- and high-net-worth estates.
