Testamentary Trust Calculator
Tax Saved on Children's Income, 2026-27
Work out how much tax a testamentary trust saves when a child inherits income: adult rates and the $18,200 tax-free threshold, instead of the 45% minors' rate on a family trust distribution.
Read the full answer — method, rates and figures
Quick answer: A testamentary trust is a trust created by a will. Its tax advantage is that income a child under 18 receives from it, when the income comes from property of the deceased person's estate, is "excepted income": it is taxed at ordinary adult rates, so each child gets the $18,200 tax-free threshold (a child receiving $18,200 pays $0 income tax).
The same income paid to a child from an ordinary family trust is taxed under the minors' rules: nil to $416, 66% of the excess to $1,307, then 45% of the whole amount, so $18,200 costs $8,190. Example for 2026-27: $60,000 a year split between 2 children costs $2,140 in tax through a testamentary trust, against $27,000 through a family trust and $23,800 if a parent earning $150,000 received it.
Income from assets unrelated to the estate that enter the trust from 1 July 2019 does not qualify. Sources: ATO, "Your income if you are under 18 years old" and "Tax rates if you're under 18 years old", checked 2026-09-27; income tax excludes the Medicare levy.
How much tax does a testamentary trust save?
In 2026-27, $60,000 a year shared by 2 children costs $2,140 through a testamentary trust, $27,000 through a family trust, and $23,800 if a parent on $150,000 received it.
Tax via testamentary trust
$2,140
Via a family trust
$27,000
If the parent keeps it
$23,800
Saved vs the parent
$21,660
Each of 2 children receives $30,000: $30,000 excepted income taxed at adult rates ($1,070). Total $2,140 a year.
That is $24,860 less than a family trust paying the same children, and $21,660 less than the parent receiving all $60,000 on top of $150,000.
Last reviewed 27 September 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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Each child receives an equal share of the year's trust income. The share that comes from estate property is excepted income, taxed at the 2026-27 resident rates with the $18,200 tax-free threshold and the low income tax offset. Any share from unrelated assets added from 1 July 2019 is taxed at the minors' rates: nil to $416, 66% of the excess to $1,307 (or the general rate on that income as the top slice, if higher), then 45% of the whole amount.
The family-trust column taxes the same shares entirely at the minors' rates. The parent column adds the whole trust income to the parent's own taxable income at adult rates. The ATO publishes the minors' table to 2025-26; for 2026-27 we apply the same rates, which have not changed since 2020-21. The model assumes the children have no other income and ignores the Medicare levy, trust expenses and franking credits.
Tax on one child's distribution, 2026-27: testamentary trust vs family trust
| Distribution | Testamentary trust | Family trust | Difference |
|---|---|---|---|
| $5,000 | $0 | $2,250 | $2,250 |
| $10,000 | $0 | $4,500 | $4,500 |
| $18,200 | $0 | $8,190 | $8,190 |
| $25,000 | $320 | $11,250 | $10,930 |
| $40,000 | $2,695 | $18,000 | $15,305 |
Resident child under 18 with no other income; income tax after LITO, Medicare levy excluded. Sources: ATO, read 2026-09-27.
When a testamentary trust is worth setting up
The saving grows with the income the inheritance produces and the number of minor beneficiaries, and it lasts only while they are under 18. A modest estate producing a few thousand dollars a year, or children who are nearly adults, may not justify the cost of a trustee and yearly trust accounts.
Inherited property carries its own tax: see how capital gains tax applies when the trustee sells with the capital gains tax calculator, what probate costs in each state with the probate fee calculator, what super paid to adult children is taxed with the inheritance tax calculator, and what a trust distribution with franking credits is worth with the franking credits calculator.
How to use this calculator
- Enter the income the trust earns each year and how many children under 18 will share it.
- Set how much of the trust's assets came from the estate (100% for a trust funded only by the will).
- Enter the surviving parent's own taxable income for the comparison.
- Read each child's tax, the total, and the saving against a family trust and against the parent keeping the income.
❓ Frequently Asked Questions
What is a testamentary trust?
A trust written into a will that comes into existence when the will-maker dies. The executor passes some or all of the estate to a trustee, who holds and invests it for the beneficiaries named in the will, often a spouse and children, and decides each year who receives the income.
Why are testamentary trusts tax-effective for children?
Because the ATO treats income a minor receives from a testamentary trust, generated from property of the deceased estate, as excepted income. It is taxed at adult rates with the $18,200 tax-free threshold, instead of the minors' penalty rates that reach 45% of the whole amount once unearned income passes $1,307.
The rules exist to stop adults diverting income to children, and a testamentary trust is one of the exceptions.
What is the tax rate on a minor's trust distribution?
For a resident under 18 receiving income that is not excepted income (such as a family trust distribution), the ATO's rates for 2025-26 are nil up to $416, nil plus 66% of the excess over $416 up to $1,307, and 45% of the total amount above that. The low income tax offset does not reduce this tax.
Does money added to a testamentary trust later still get the concession?
Not if it is unrelated to the estate. Income from assets acquired by or transferred to the trustee on or after 1 July 2019 that are unrelated to property of the deceased estate is taxed at the minors' rates.
Reinvested estate property still counts: if the trustee sells an inherited rental and buys shares, the dividends remain excepted income. Where both kinds of assets are mixed, the ATO apportions the child's income by the share of assets that came from the estate.
Is a testamentary trust better than leaving everything to my spouse?
It depends on how much income the inheritance will produce, how many children or grandchildren could share it, and the survivor's own tax rate. Beyond tax, people also use testamentary trusts to control how and when beneficiaries receive capital, but a trust adds trustee duties and yearly accounts.
Get advice from an estate-planning lawyer; this calculator shows the tax side only.
Does this include the Medicare levy?
No. It shows income tax after the low income tax offset. The Medicare levy has its own low-income thresholds, and a parent's comparison figure would be higher once the 2% levy is added.
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Further Reading
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