The government should allow variations as to who can be considered a beneficiary of a tax-exempt discretionary trust to account for changes within families, according to the Financial Advice Association Australia (FAAA).
In a submission to Treasury regarding draft legislation for the tax, the representative body noted a trust which elected to be exempt from a proposed minimum tax by limiting distributions to pre‑nominated beneficiaries could not alter that choice except in the case where a nominated beneficiary passed away or a relationship broke down.
FAAA recognised while Treasury intended the design for these Excluded Election Trusts (EET) to be straightforward, and beneficiaries moving in and out would create complexity, variations would be needed due to changing circumstances across the lives of beneficiaries.
“While we understand the desire to streamline processes, we believe a small number of pre-determined life event variations would strike an appropriate balance between simplicity and the practical realities faced by families over time,” the submission stated.
“We do not believe that it is reasonable for this regime to cause the risk of significant family disputes in the future as a result of the exclusion of certain family members who may become eligible to be a beneficiary under the trust deed, however, be excluded from receiving income or capital as a result of the EET election.
“The electable regime explanatory memorandum permits reallocation of a deceased beneficiary’s share only to ‘existing specified individual beneficiaries or other individuals who are capable of benefiting under the trust deed’, and only where those individuals are beneficiaries of the deceased individual’s estate.
“At the 16 September 2026 consultation meeting, Treasury invited us to raise the common scenario in which a deceased beneficiary leaves their estate in the first instance to their spouse rather than directly to their children.
“On the current drafting, those children who would ordinarily be expected to succeed to the family interest may be unable to be substituted as EET beneficiaries because they are not immediate beneficiaries in the will, notwithstanding that the spouse’s testamentary intentions would eventually see the interest pass to them,” the industry body’s submission pointed out.
The FAAA suggested variation rules should also address life events that are verifiable and do not raise integrity concerns, such as the birth or adoption of a child, the introduction of stepchildren following remarriage, a beneficiary acquiring a disability, incapacity or serious health support need, a beneficiary entering bankruptcy or serious financial vulnerability, and court orders or legal obligations affecting trust property or beneficiary interests.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason