Why estate planning is essential

Estate planning lawyer Rachael Rofe, founder of Rofe + Co, is blunt about who will be affected. “These are not necessarily the wealthy,” she says. “They are students, spouses caring for children, young adults just starting out, and children not yet earning. They are the very people the estate plan was designed to protect.”

The government has suggested fixed testamentary trusts as an alternative, exempting them from the proposed new tax. But a fixed trust requires you to decide, on the day you sign your will, exactly how much each beneficiary is entitled to receive and in what proportions for the life of the trust.

In effect, you are being asked to predict their circumstances decades into the future. You cannot know which beneficiary may end up in a difficult marriage, run into financial trouble, develop a dependency, or simply need more protection than another.

A fixed entitlement is also there for all to see, including lawyers, creditors, and former spouses, making it more vulnerable to the very risks the trust was designed to guard against.

A discretionary trustee can respond to events as they unfold, delaying or redirecting distributions to help keep an inheritance beyond the reach of beneficiaries who cannot manage it themselves, and others who would try to claim it.

That flexibility is the whole point of a testamentary trust, and it is precisely what a fixed trust removes. The proposed legislation is drafted with a narrow focus on tax collection and little apparent consideration of the broader consequences for ordinary families.

None of this makes discretionary testamentary trusts redundant. They remain valuable for asset protection, control and flexibility, and the proposal touches none of that.

So, the smart move is to build the option into your will now. A good will can hold one in reserve: your executor can choose whether to use it based on the law and each beneficiary’s circumstances at the time of inheritance.

What you cannot do is add one after death. Put it in, and your family keeps the option open. Leave it out, and the door is closed.

The proposed testamentary trust changes are not the only example of tax policy spilling into estate planning.

Division 296 is another example. The tax on super earnings increases once balances exceed $3 million and rises again for balances above $10 million.

The catch is where the bill lands: if your super passes directly to one person under a binding nomination but the Division 296 liability falls to the estate, the person who gets the super may not be the one who pays the tax.

The money can go one way, and the tax bill another. That is not just a tax problem: it is a family fight waiting to happen.

With all the moving parts, Rofe’s advice is to get the order right. “Good estate planning starts with the goals: getting the right assets to the right people, in the right structure, with the least chance of a fight. The will, super nominations, tax consequences, and family dynamics must be considered together. That is where the real planning happens,” she says.