Does July 2028 mark the end of discretionary trusts?

“The use of trusts is not just about tax. If I look at the evolution… if I go back to the 12th-century Crusades when the concept of trust came about, it was about these men going into battle and transferring land holdings to trusted friends. 

“How do you know if I come back alive — how do I get that land holding back? So succession planning was the focus, and it is this succession planning that I see guiding some of the trust structures that I've come across,” Hanna said.

Hanna noted that this type of use is still being seen by clients who open “bloodline trusts”, setting up their discretionary trust for the sole benefit of the offspring of a family head.

“The purpose of this was to protect family wealth from people coming into the family group outside of birth and to ensure succession of family assets without dilution. Tax may have been a factor, but in these instances, I would say succession of family wealth may have been the more dominant consideration,” Hanna added.

“With the attention on the current trust tax reform measures, one could understand why some people might think the era of discretionary trusts is coming to an end and may soon be dead. But likely, I don't think that will happen.

“Traditionally, I've seen [the structure] used in a wide range of circumstances. While they are suited as an investment vehicle to hold property and family wealth in, they are also used to run businesses.”

Helping clients navigate the three options

If the legislation does pass, from 1 July 2028 discretionary trust users are given three options: to accept the minimum tax, restructure into another trust structure, or make an election where the trust will distribute forever to the same beneficiaries in the same proportions for both income and capital.

“It's also important to remember that not every client will require the same response [to the three options]. For our new and existing clients setting up new structures, we still need to keep discretionary trusts on the table for consideration, even if the proposed tax implications become law,” Hanna added.

Hayes emphasised that some clients put their main residence in a discretionary trust for asset protection, which would subsequently remove the main residence exemption. This, she said, reveals that the use of discretionary trusts is not just focused on tax.

“They would rather have asset protection than the main residence exemption down the track. There are instances where tax is just perhaps the price you pay for the asset protection; we need to not be always just focused on the tax,” Hayes said.

“There is no one set approach — you gotta consider your client's circumstances and what their appetite is and what are the key dominant things for them that they're trying to weigh up.

“For some clients, the ideal structure might be multiple entities; it might not just be one trust versus one company. It could be, do we have a company with a shareholder that's another company, with the shareholder of that company being a discretionary trust.”

Stamp duty implications

Hanna said that when advising clients on transferring dutiable property from a discretionary trust structure to another structure, they must do so cautiously, in light of a lack of solidarity between the states on duty treatment.

While there is a call for a coordinated effort across the states and territories to address this, it's important to remember that each state and territory has its own stamp duty laws,” Hanna said.

According to LawPath data, LawPath co-founder and chief marketing officer Tom Willis revealed that Anthony Albanese announced the most small business rules among all prime ministers serving the country from 1996 to 2026, at 4.1 per year.

“This could explain why this year has been so hectic,” Hanna said.

Hanna said that the 2026 Budget’s wholesale reform is leading to some unintended consequences.

“[It] seems to have come all at once with limited consultation, unintended consequences which then require further amendments and change,” Hanna said.

Hayes noted the burden that this will have on accountants.

Added work

“What we've got now is with the drip feeding of [legislation] coming [at] rapid fire. 

“You're no sooner learning one bit and identifying the holes in it [until] the next bit comes to plug some of those holes, so then you have to kind of work out how that piece interacts with that, and then the next piece comes out, and you're not really having the time to kind of put it all together, think about it, step back and see the bigger picture,” Hayes said.

While Treasury estimated that a restructure would involve about 100 hours of professional services work at the second Senate Economics Legislation Committee hearing on the minimum tax on discretionary trusts, on Friday (6 November), accountants are concerned by the extra time burden that they will face in 2028.

“I do hold genuine concerns as to whether accountants and advisors can effectively navigate all of this… I don't know how many hours we're expected to be able to do all of this in within the time frames that have been put out,” Hanna added.

“There's just so much change, and we're not given the time that we need to respond effectively to it. I'm concerned that this will be too much for some accountants — especially the ones coming close to that time of contemplating retirement. This might be the thing that just says, ‘well, you know what, I don't want to learn this, because this is actually really complex’.”

“I've been speaking to accountants who just say they actually don't have the time now to actually give the attention to their clients that's needed. If you were thinking about winding back… this is probably going to accelerate that [thought],” Hayes added.