Testamentary trusts have been through a quiet decade of evolution. The 2019 changes restricting the income splitting benefits for minor beneficiaries reshaped the use case. The subsequent regulatory and tax adjustments have continued to refine where they earn their keep. By May 2026 the practice has settled into a clearer pattern, with testamentary trusts firmly retained for specific situations and quietly removed from estate plans where the rationale no longer holds.

This is a practitioner-focused read on where the use case sits.

The post-2019 use case

The income splitting tax advantage that drove much of the historical popularity of testamentary trusts is now bounded. Income flowed to minor beneficiaries through a TT now generally attracts adult marginal tax rates rather than the favourable rates that applied before 2019.

This reshaped the rationale. The pure tax-driven case for a TT in estates with minor beneficiaries weakened. The non-tax rationales — protection from creditors, protection in family law disputes, protection of vulnerable beneficiaries, intergenerational wealth structuring — became proportionally more important.

Estate planning practice through 2020-23 took some time to recalibrate. By 2024-25 the new equilibrium was clearer, and 2026 is settled enough that we can describe the use case with reasonable confidence.

Where TTs still earn their keep

Several specific situations continue to make a strong case for testamentary trusts.

Estates where the beneficiaries include vulnerable adults — children with significant disability, beneficiaries with addiction or mental health issues, beneficiaries facing relationship breakdown — benefit from the protective structure a TT can provide. The trustee’s discretion over distributions creates a meaningful protection that direct ownership doesn’t.

Estates where the beneficiaries face significant creditor or family law risk continue to benefit from the asset protection a TT provides. The protection isn’t absolute and depends on careful structuring, but it’s real.

Estates with complex blended family structures often benefit from a TT that allows the trustee to manage distributions across multiple beneficiary groups over time, rather than handing assets to one group with the hope that they’ll later look after another.

Estates where the wealth transfer is large enough to justify ongoing professional administration benefit from a TT structure that institutionalises the wealth across generations, with clear governance and clear boundaries on access.

Estates where the income splitting case still applies — adult beneficiaries on lower marginal tax rates — can still earn meaningful tax efficiency from a TT, even after the 2019 changes that restricted the minor beneficiary advantages.

Where TTs are being removed

Several situations that historically had TTs are now seeing them removed or simplified.

Estates with adult beneficiaries on similar marginal tax rates and no protection issues no longer get much benefit from the TT structure. The administrative cost of the trust outweighs the marginal tax advantages and the optional protection isn’t needed.

Estates of moderate size where the TT structure is disproportionate to the wealth being managed don’t justify the complexity. A simple direct distribution often serves the family better than a multi-beneficiary trust that costs as much to administer as it generates in income.

Estates where the family circumstances have changed since the original estate plan — beneficiaries who’ve matured, debts that have been paid, relationships that have stabilised — often have TTs that no longer reflect the current reality. Simplification through deed of family arrangement or through revised wills can be beneficial.

Estates where the practitioner inherited the structure from earlier advice and never re-examined whether it still made sense. This is more common than it should be. A periodic review of whether the TT continues to earn its place is worth the time.

The administration question

The administrative burden of a properly run testamentary trust is non-trivial. Annual accounts, tax returns, beneficiary distributions, trustee meetings or decisions, and the broader administration adds up to real cost over the life of the trust.

The cost is justifiable when the protection or tax benefits are significant. It’s hard to justify when the trust holds modest assets that produce modest income for adult beneficiaries who would do fine receiving the assets directly.

The practitioner conversation that’s important is helping the client understand the cost-benefit. A TT that costs $3,000-5,000 a year to run and saves $500 in tax is not a successful structure. A TT that costs the same but provides meaningful protection or supports a vulnerable beneficiary is doing real work.

The trustee selection question

Trustee selection has become more important as the protective rationales have moved to the foreground. The trustee in a testamentary trust providing asset protection or vulnerable beneficiary protection has to actually exercise the discretion the structure provides.

Family member trustees can do this work well in some situations and poorly in others. The family member trustee has the relationship knowledge and the trust of the family. They may also have conflicts of interest, may be reluctant to make hard discretionary decisions, or may simply not have the capability to administer a trust properly.

Professional trustees provide more consistent administration and clearer arms-length decision-making. They’re more expensive and they don’t have the family relationship knowledge.

The hybrid arrangement — a family member as trustee with professional support — has become the most common solution for serious testamentary trusts. The family member provides the relationship knowledge and primary decision-making. The professional support handles the technical administration and provides counsel on harder decisions.

What the courts are signalling

Recent decisions in the family provision and trust dispute space have continued to emphasise the importance of careful drafting and considered trustee discretion. Trusts that are sloppily drafted, that don’t address foreseeable scenarios, or that rely on trustee discretion that hasn’t been thoughtfully exercised are being challenged successfully.

The implication is that a testamentary trust is only as good as its drafting and its administration. A well-drafted, well-administered trust is robust. A poorly-drafted or poorly-administered trust can be challenged on multiple grounds.

For practitioners, this argues for taking the drafting work seriously and for advising clients on the importance of proper administration once the trust is operational.

What clients are asking

The client conversations through 2025-26 have shifted from “should we have a testamentary trust” to “is the testamentary trust we have still the right structure.” The reactive question often surfaces when something specific changes — a beneficiary’s circumstances, the family composition, the asset mix.

The proactive review of existing TTs has become a more common engagement. Practitioners are reviewing TTs established a decade or more ago and finding that the original rationale has shifted. Some are still earning their place. Others have become administrative overhead with no current purpose.

The right answer depends entirely on the client’s specific situation. The general advice that “every estate should have testamentary trusts” was always too broad. The general advice that “the 2019 changes killed testamentary trusts” was always too narrow. The honest answer is that they earn their place in some situations and not in others, and the practitioner’s job is to help the client work out which they’re in.