Updated 23 October 2026
Wills - Potential Problem #21: Ignoring Trusts
A trust can help manage an inheritance for children, support a beneficiary over time or continue a family’s investment arrangements. It is not essential for every estate, and it does not automatically avoid probate or reduce tax. The starting point is to identify the problem you want the trust to solve.
For NSW families, two questions are especially important: does an existing trust already hold assets outside your personal estate, and would a trust created by your will help the people you intend to benefit? Each needs its own succession plan.
1. Distinguish family trusts from testamentary trusts
An existing family trust is usually established during your lifetime by a trust deed. The trustee holds and administers property for beneficiaries under that deed. In a discretionary trust, being a potential beneficiary does not itself give you a fixed share of every asset.
A testamentary trust is created under a will and operates following death. The will sets its terms, including who may benefit, who acts as trustee and how distributions can be made. ASIC’s Moneysmart guidance explains that an existing family trust usually continues after death, while a testamentary trust forms part of the will.
There is a further distinction for tax administration: the deceased estate during administration is not the same as an ongoing testamentary trust. NSW Government guidance for executors identifies these as separate arrangements. Creating a testamentary trust does not remove the executor’s responsibilities for the estate.
2. Understand what still passes through your estate
Putting a testamentary trust in your will does not, by itself, bypass probate. Assets that form part of your deceased estate must still be dealt with through estate administration, including any required grant, liabilities and transfers. The trust provides a structure for holding and managing the inheritance rather than an exemption from that process.
Property genuinely held for an existing family trust is generally not yours beneficially to give away under your will. However, shares you personally own in a corporate trustee, a loan owed to you by the trust, or a transmissible beneficial interest may form part of your estate. Each interest needs to be identified separately.
For example, directing your executor to leave “my trust property” to a child may not transfer the trust’s house to that child. The relevant questions are who owns the house, what rights you hold and what the deed permits. Your will, trust documents and company records need to work together.
3. Decide whether a testamentary trust serves your beneficiaries
A trust may be worth considering where a beneficiary is young, needs help managing money or would benefit from support over a longer period. It can allow a trustee to manage investments and make authorised payments for education, housing or care rather than transferring everything outright.
The drafting should explain which beneficiaries can receive income or capital, who makes those decisions and when the arrangement ends. Consider substitute trustees and what happens if a beneficiary dies. A disability does not automatically mean someone lacks decision-making capacity; the plan should reflect the person’s actual circumstances and wishes.
Consider the assets available to fund the trust. A trust intended to provide regular support may struggle if its only asset is a property that produces no income and cannot readily be sold. Discuss liquidity, any occupation rights and the trustee’s investment and distribution powers before settling the terms.
A straightforward outright gift may better suit an independent adult beneficiary. Compare the intended benefit of continuing control with the ongoing accounting, record keeping and decision-making obligations. Establishing a trust simply because it sounds protective can create avoidable complexity.
4. Plan who controls an existing trust after death
The Law Society of NSW explains the roles within a trust. The trustee administers it, while an appointor, where the arrangement provides for one, may hold powers concerning replacement of trustees. The scope and succession of those powers depend on the documents and applicable law.
Check what happens on death or incapacity, whether a successor has been validly nominated and whether joint decision-makers could become deadlocked. Naming someone executor does not automatically give them every trustee or appointor power. A will can nominate a successor only where the relevant arrangements allow it.
If there is a corporate trustee, review both directorship and share ownership. A director’s office does not simply pass under a will. ASIC’s guidance for sole directors and sole shareholders explains the statutory mechanism through which a personal representative may appoint a director in the relevant circumstances.
5. A verified NSW case about control of a testamentary trust
In James v Douglas [2016] NSWCA 178, a will created testamentary trusts and named an appointor. He attempted to remove two original trustees and replace them with himself and his wife. The dispute concerned whether the will actually gave him that power.
The Court of Appeal dismissed his appeal, upholding the conclusion that he lacked the claimed power to remove the original trustees. The lesson is that a role’s title does not establish unrestricted authority. Clear drafting and a review of the actual replacement and succession provisions matter as much as deciding to use a trust.
6. Check the tax consequences before establishing or funding a trust
The ATO confirms that Australia has no inheritance or estate tax, but income tax and capital gains tax can still arise during administration and afterwards. A trust does not make investment earnings or asset sales tax-free. Moving existing property into a trust can itself have tax consequences.
Revenue NSW’s guidance on establishing trusts explains that declarations over dutiable property may attract transfer duty. Obtain advice before transferring land or changing beneficial ownership rather than assuming a family arrangement is exempt.
Under current rules, qualifying income generated from deceased-estate assets held in a testamentary trust may be taxed at ordinary adult rates for a minor beneficiary. This treatment is not automatic for every distribution. The ATO’s guidance on income for people under 18 explains the restrictions on income from assets introduced from outside the deceased estate. Track the source of trust assets and obtain tax advice before adding funds.
7. Review the proposed trust tax changes announced in 2026
The 2026–27 Federal Budget proposed a 30% minimum tax on discretionary trusts from 1 July 2028. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 was introduced on 14 October 2026. The announced exclusions include deceased estates and discretionary testamentary trusts established for genuine testamentary purposes. These are proposed changes with a future commencement date, not a description of the tax currently payable by every trust.
Do not assume that every trust created by a will will satisfy the proposed exclusions. Review the governing terms, asset sources and beneficiary arrangements against the legislation ultimately enacted. Existing family trusts also need a separate review; their treatment should not be assumed to match that of a testamentary trust.
8. Do not assume a trust prevents every claim
Asset protection depends on the structure, rights, control and relevant transactions. In Kennon v Spry [2008] HCA 56, the High Court considered trust interests and powers in a matrimonial property dispute. A trust should not be presented as an automatic shield from family law claims. Creditor and NSW notional estate issues also require individual assessment.
9. Review the whole arrangement with your advisers
Bring your current will, complete trust deed and amendments, company records and recent financial statements to the review. Identify trustee appointments, appointor succession, loans, beneficiary entitlements and the trust’s end date. A diagram of ownership and control can help expose gaps that are easy to miss when documents are reviewed separately.
Ask your solicitor and accountant to test the plan against death, incapacity, relationship changes and a proposed sale of major assets. Confirm that the people expected to administer the trust are willing and able to do so, and that they can locate the documents and financial records.
CM Lawyers can help you assess whether a testamentary trust suits your estate and coordinate your will with existing trust arrangements. Explore our wills and estates services or contact Christine Manolakos and the team to discuss the structure, intended beneficiaries and succession of control.
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