A testamentary trust can keep your farm in one piece after you are gone, but only if it is built into your will while you are alive.
That last part matters for Western District families. A testamentary trust does nothing for a farm handover that happens while you are still here. It is one tool in your wider farm succession planning, and it suits some families far more than others. Let's work out whether yours is one of them.
When Does a Testamentary Trust Make Sense for a Farm?
A testamentary trust makes sense when you want the farm to pass to the next generation in a controlled way, rather than being handed over in full to each child on the day the estate is settled. It is a trust created by your will, so it only starts once you have died.
It tends to suit families where one child is farming and others are not, where beneficiaries are young, or where you want some protection if a child later faces a relationship breakdown or business trouble. The trust holds the assets, and a trustee decides how income and capital are shared, based on the rules in your will. A trust can help protect assets, but it is not a guarantee, and the outcome depends on how it is drafted and the circumstances at the time.
The main trade-off is cost and control. A solicitor needs to draft the will carefully, the trust needs a tax return and records each year, and your children give up some of the direct ownership they would have with a standard will.
What a Testamentary Trust Does That a Standard Will Does Not
A standard will transfers assets straight to each beneficiary. A testamentary trust will instead places assets with a trustee, who holds them for the beneficiaries under rules you set.
For a family farm, this means the land and plant can sit together in one structure, rather than being split into pieces owned by several people. You can choose who the trustee is, and who steps in later if that person cannot continue. A farming child might be trustee, while off-farm siblings share in the income.
This is the core of good farm estate planning. It also means the people you appoint carry real responsibility, so pick them with care and talk to them early. Our farm succession planning page explains how we work alongside your solicitor and accountant on this.
Proposed Tax Changes to Discretionary Testamentary Trusts
The government announced in the 12 May 2026 Budget a proposed 30% minimum tax on discretionary trusts from 1 July 2028. It has said genuine testamentary trusts, including discretionary ones, will be excluded.
The exclusion has conditions. It only covers income from assets of the deceased estate, so unrelated assets added after Budget night are not exempt. Trusts set up on or after 1 July 2028 generally need beneficiaries who are individuals or tax-exempt entities. Taxable primary production income is also excluded from the minimum tax, which is relevant for a farm.
The measure is not yet law and is still before Parliament, so the final rules may change. Treat the proposal as a reason to get current advice rather than a reason to panic or delay. Speak to your accountant and solicitor before you rewrite a will or make any decision based on announced measures.
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Small Business CGT Concessions After a Death: The Two-Year Window
If a farm asset is sold within two years of the owner's death, the person holding it may be able to use the small business CGT concessions the owner could have used. The ATO says this extends to a trustee or beneficiary of a testamentary trust, and you are eligible where the CGT event happens within two years of the individual's death.
The catch is what happens after that. If the business is not continued, or the asset is not used in another business, the active asset test may not be met. The Commissioner can extend the two years in some cases, but you should not plan around that.
In practice, this makes timing part of your succession plan. If part of the farm might be sold to fund payouts to non-farming children, that sale should be discussed with your accountant well before it is needed. Concessions depend on your own facts, so nothing here is a promise of a tax outcome.
Example: One Farming Child and Two Who Live in the City
Consider a couple running a mixed sheep and cropping farm near Hamilton. They have three adult children. One works on the farm, and two live in Melbourne and have no plans to return. The parents want the farm to stay viable, but they also want the other two to be treated fairly.
Their solicitor drafts wills that place the farm land into a testamentary trust. The farming child is trustee, and a second trusted person is named as a co-trustee to add oversight. All three children are beneficiaries, so the city-based siblings receive a share of trust income rather than a share of the paddocks.
The outcome, in a scenario like this, is that the farm is not broken up to pay out siblings. The farming child can keep operating, and the other two have a financial interest without needing to be involved day to day. The cost is ongoing trust administration and a need for open communication, because the farming child has to run the farm and answer to the family. If the parents also want to hand over some operations while they are alive, they would need separate arrangements, because the trust only starts after death.
Can You Borrow Against Farm Assets Held in a Testamentary Trust?
A trustee can borrow for the trust only if the will and trust terms (and trustee legislation) give that power. Lenders will generally want to review the will or trust deed and assess the trustees, but requirements differ between lenders.
This is where a broker earns their keep. Lenders may ask for evidence of the trustee's powers, and legal advice may be needed if the will does not give them.
It is worth testing this before you finalise your will. Our team can talk through how different lenders may view a trust when it comes to farm land finance, so your solicitor can draft with the lending side in mind. If you farm around Hamilton, our Hamilton farm finance broker page covers how we support local clients. You can also read about Mark Cornell and the background he brings to farm lending.
If you are weighing up a testamentary trust, we can sit down with you and your advisers and look at the lending side. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
When does a testamentary trust start?
A testamentary trust is created by your will, so it only starts after you have died. It cannot be used to hand over the farm while you are still alive.
Can a testamentary trust protect a farm from a child's relationship breakdown?
It can help, because the trust holds the assets rather than the child personally. The result depends on how the trust is drafted and the circumstances, so get legal advice.
Do small business CGT concessions apply to farm assets in a testamentary trust?
They may, if the sale happens within two years of the death and the owner could have used the concessions just before dying. Speak to your accountant about your situation.
Are there tax changes proposed for testamentary trusts?
The government has proposed a 30% minimum tax on discretionary trusts from 1 July 2028, but says genuine testamentary trusts will be excluded, subject to conditions. The measure is not yet law, so check with your accountant and solicitor.
Can a testamentary trust borrow money for the farm?
A trustee can borrow only if the will and trust terms (and trustee legislation) give that power. Lenders will generally want to review the will or trust deed and assess the trustees, but requirements differ between lenders.
