What is considered ‘genuine testamentary purposes’?

While the announcement provides welcome updates, the Government has not yet defined what constitutes ‘genuine testamentary purposes’.

Further guidance is needed to determine whether the exclusion will apply broadly to all testamentary trusts established under a valid Will, or whether additional conditions will need to be satisfied. This will be an important area to monitor as consultation progresses.

Limitation to deceased estate assets

The Government has indicated that the exemption will be limited to income derived from assets of the deceased estate.

While the detail has not yet been released, this may be intended to prevent additional assets from being contributed to a testamentary trust and benefiting from the exemption.

Impact on trusts established on or after 1 July 2028

For discretionary testamentary trusts established on or after 1 July 2028, the exemption will only be available where beneficiaries are limited to individuals and income tax exempt entities.

This raises several practical questions for existing estate plans and testamentary trust structures, including:

• when is the testamentary trust established?
  • when the Will is executed
  • when the Will-maker dies
  • when probate is granted
  • when the assets are transferred to the testamentary trust.
• whether existing Wills will need to be updated to limit distributions from discretionary testamentary trusts to individuals and income tax exempt entities
• what happens if the Will-maker no longer has capacity to change their Will
• if an existing Will contains a discretionary testamentary trust and the person dies after 1 July 2028, can the discretionary testamentary trust still distribute to a company without the 30% tax?

How SW can help

We can assist in reviewing your existing Wills and testamentary trust structures in conjunction with your lawyers to assess the impact of the proposed changes and identify any required updates. We can also provide guidance on how the new rules may apply in practice, including the proposed post-1 July 2028 beneficiary restrictions, and support clients as further detail and legislation are released.

We encourage you to speak with your current SW advisor or contact our consultants, Heather Dyke and Taylah Cooke, if you would like to understand how these changes may impact your estate planning and testamentary trust arrangements.

Contributors

Heather Dyke | Associate Director, Business and Private Client Advisory

Taylah Cooke | Manager, Business and Private Client Advisory

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