Benjamin Franklin famously observed that nothing in life was certain except death and taxes. Under the Albanese Labor government's latest taxation proposals, the two certainties threaten to become even more closely connected. A controversial plan to impose a minimum 30 per cent tax on discretionary trust income has alarmed estate planning lawyers, who warn that potentially large numbers of Australians may have to rewrite their wills to protect their families from unexpected taxation. What was promoted as a measure against tax avoidance by wealthy Australians could become an expensive bureaucratic nightmare for ordinary families attempting to provide for their children and other dependants.
The controversy centres on testamentary trusts, legal arrangements established through wills that come into operation following a person's death. Such trusts are frequently used to protect inheritances for young children, people with disabilities, financially vulnerable beneficiaries and families facing complicated circumstances. They can also offer legitimate tax-planning advantages, but their function extends well beyond minimising taxation. A testamentary trust may allow assets to be managed responsibly over many years, preventing an inheritance from being dissipated prematurely or exposed unnecessarily to financial difficulties.
Labor's proposed reforms, introduced into Parliament in October 2026, would impose a minimum tax of 30 per cent on the taxable income of discretionary trusts from July 2028. The government argues that discretionary trusts can facilitate income splitting, allowing some families to obtain tax advantages unavailable to ordinary wage earners. Treasurer Jim Chalmers has presented the reform as an attempt to create greater fairness within the taxation system, with the additional revenue helping to finance broader income tax reductions. This is the government's stated justification, and there are legitimate arguments about whether existing trust arrangements permit excessive tax minimisation.
However, the controversy concerns not merely the general taxation of trusts but the treatment of testamentary trusts established to provide for families after death. Following criticism of the original proposals, the government announced an exemption for certain testamentary trusts. Anthony Albanese and Jim Chalmers sought to reassure Australians that ordinary estate planning arrangements would not be caught by the new minimum tax. Unfortunately, estate lawyers examining the proposed legislation have identified a potentially serious difficulty: the exemption may depend upon the precise categories of beneficiaries permitted under the trust deed.
According to reporting in The Australian on 16 October 2026, the proposed exemption is confined to testamentary trusts whose potential beneficiaries are limited to individuals, charities and special disability trusts. Yet many existing wills contain much broader beneficiary provisions, including related companies and other family trusts. These provisions were often included not because the testator intended to engage in elaborate tax avoidance, but because lawyers sought to preserve flexibility for circumstances that might arise decades later. A will drafted perfectly properly under the existing legal framework could therefore produce a testamentary trust that fails to qualify for the proposed exemption.
The consequences could be substantial. Estate lawyer Kimberley Martin, deputy chair of the national policy committee of STEP Australia, warned that the reforms could force widespread redrafting of wills containing testamentary trusts. She emphasised that many clients affected were not wealthy financial operators but ordinary Australians, including nurses, teachers and aged-care workers seeking to protect their families. Matthew Burgess, co-founder of View Legal, similarly criticised the complexity and short implementation period of the proposed changes. Their objections raise an obvious question: why should families who made lawful and prudent arrangements under existing rules now have to incur additional legal expenses merely to preserve the intended operation of their wills?
There is a particularly troubling problem involving elderly people and those who have lost testamentary capacity. A person must possess the necessary legal capacity to make or amend a valid will. Someone suffering advanced dementia or another condition affecting decision-making may no longer be able to rewrite an existing testamentary arrangement. If the proposed exemption does not protect such wills, the family could face adverse tax consequences despite having no practical means of changing the original document. The law would then penalise arrangements that cannot be repaired through ordinary estate planning.
This difficulty exposes a broader problem with retrospective disruption of legitimate expectations. The proposed tax would operate prospectively, rather than being a tax imposed retrospectively upon past income. Nevertheless, it could alter the consequences of wills executed many years earlier, at a time when the people concerned reasonably relied upon the legal arrangements then available. Individuals often regard a properly executed will as a settled matter, reviewing it when family circumstances change rather than whenever a government announces a new tax initiative. A reform that effectively requires widespread reconsideration of existing wills imposes costs and uncertainty upon people who may have done nothing more than follow professional legal advice.
The government's apparent failure to accommodate the breadth of ordinary testamentary trust drafting is especially difficult to justify if a narrower solution is available. Estate lawyer Rachael Rofe has suggested that the legislation could instead target the particular income distributions that raise taxation concerns, rather than denying an exemption because a trust instrument permits certain categories of beneficiaries. Such an approach would more directly address the government's stated objective while potentially avoiding the need for extensive redrafting of wills. Whether this alternative would adequately satisfy all the government's revenue and integrity objectives requires examination, but it deserves serious consideration.
The economic costs of the present uncertainty should not be underestimated. Families may have to consult solicitors, review complicated trust provisions, obtain specialist taxation advice and execute new wills or codicils. Some may need to reconsider broader estate structures involving businesses, property and family companies. These expenses represent resources diverted from productive activity and family savings into legal compliance. Even where no additional tax ultimately becomes payable, the cost of determining whether an arrangement remains suitable can be considerable.
There is also a distinction between attacking genuine tax avoidance and penalising the ordinary use of legal structures. Trusts are not inherently abusive devices. They have long served legitimate purposes in protecting assets, managing family businesses and providing for vulnerable beneficiaries. A government may reasonably seek to prevent artificial income splitting or arrangements designed primarily to exploit differences in tax rates. But the existence of some questionable practices does not establish that every flexible testamentary trust should be treated with suspicion. Effective taxation policy should distinguish between the misuse of a legal arrangement and the arrangement's legitimate purposes.
Supporters of Labor's reforms argue that the present system permits some relatively affluent households to reduce their tax liabilities by distributing income among beneficiaries facing lower marginal rates. They contend that workers earning wages have fewer opportunities to arrange their affairs in this manner and that a minimum tax would produce greater horizontal equity between taxpayers. This argument deserves to be taken seriously. Yet fairness in taxation cannot be measured solely by the amount of revenue collected. It also requires predictable rules, proportionate compliance costs and reasonable protection for people who have structured their affairs lawfully and in good faith.
The proposed minimum tax is not, strictly speaking, a general death duty or inheritance tax. Australia does not thereby acquire a universal tax imposed simply because someone dies and leaves property to relatives. The proposed charge concerns taxable income earned through particular trust structures, and the government has sought to exclude qualifying testamentary trusts. Nevertheless, the description of the controversy as a form of death taxation reflects a genuine concern: a person's death may activate a testamentary arrangement that becomes subject to a new tax burden because of provisions contained in a long-established will. The legal distinction matters, but so do the practical consequences for affected families.
The affair also illustrates the tendency of complicated taxation systems to generate unintended consequences. Each new rule requires exemptions, definitions, anti-avoidance provisions and transitional arrangements. These in turn create further boundaries between those who qualify for favourable treatment and those who do not. Taxpayers must then employ advisers to navigate the resulting complexity, while governments face pressure to close perceived loopholes. The process can become self-perpetuating, with the costs of administration and compliance growing independently of the productive wealth upon which taxation ultimately depends.
For families, the central issue is certainty. A person making a will should be able to establish reasonable arrangements for dependants without fearing that future changes to tax legislation will render the document unexpectedly disadvantageous. No parliament can guarantee that taxation rules will remain unchanged indefinitely. However, when reforms affect established estate planning practices, governments should provide generous transitional protection and carefully designed exemptions. Otherwise, citizens are left to bear the costs of legislative uncertainty over arrangements that may not take effect for decades.
The political embarrassment for Labor is that a reform promoted as targeting sophisticated tax minimisation may instead generate anxiety among families with comparatively modest estates. If the warnings of experienced estate lawyers are correct, the government has underestimated the prevalence of broad beneficiary clauses in ordinary testamentary trusts. The solution should not be to dismiss those concerns as special pleading by wealthy taxpayers. It should be to examine the legislation carefully, identify the unintended effects and amend the provisions before they become law.
There is an additional irony in the government's approach. Australians are routinely encouraged to act responsibly, save for their retirement, organise their financial affairs and make proper provision for their families. Testamentary trusts can be one means of fulfilling those responsibilities. Yet when a government alters the taxation framework surrounding such arrangements, the people who acted prudently may find themselves facing substantial additional legal expenses. This hardly encourages confidence in the stability of long-term financial planning.
The broader lesson is that taxation policy should not be judged solely by its stated intentions. A measure intended to improve fairness can produce unfair consequences if its design is excessively broad, poorly targeted or insufficiently sensitive to existing arrangements. The legitimate objective of preventing tax avoidance does not excuse avoidable disruption to ordinary families, particularly where children, people with disabilities and those unable to amend their wills may be affected.
Franklin's observation about death and taxes has rarely seemed more appropriate. Australians may spend their working lives paying income tax, GST, council rates and numerous other government charges, only to discover that the legal arrangements intended to protect their families after death have become entangled in another taxation controversy. The proposed testamentary trust rules are not a universal inheritance tax, but they demonstrate how taxation policy can reach into the most personal arrangements people make for those they leave behind. If Labor genuinely intends to protect ordinary testamentary trusts, it should ensure that the legislation achieves that purpose in practice, not merely in ministerial assurances. Even death should not become another occasion for unnecessary taxation complexity and expensive legal restructuring.
https://www.theaustralian.com.au/wealth/personal-finance/labors-death-tax-on-trusts-forces-millions-to-redraft-wills-estate-lawyers/news-story/daa869aac448d30adf0b4aa092e840f5