The short answer: choose a testamentary trust to protect what you leave behind, and a discretionary trust to hold assets and share income flexibly while you are alive. The two often work together. A testamentary trust is created by your Will and starts after you die. A discretionary (family) trust is created by a trust deed and operates during your lifetime. This guide compares them side by side, explains the Queensland rules that affect your choice, and shows how each one is set up. For what a testamentary trust can do for your family, see our guide to testamentary trust Wills. Our estate planning lawyers in Queensland can help you decide which structure suits you.
Testamentary Trust vs Discretionary Trust: Side-by-Side Comparison
The two trusts differ in when they start, who controls them and how they are taxed. This table sets out the differences that matter most in Queensland.
| Feature | Testamentary trust | Discretionary (family) trust |
|---|---|---|
| Main purpose | Manage and protect what you leave behind | Hold assets and share income flexibly during your lifetime |
| Created by | Clauses in your Will | A trust deed, signed by a settlor and a trustee |
| Starts | On your death, once your executor has administered the estate | When the deed is signed and the trust is settled |
| Control | A trustee named in your Will, often with an appointor who can replace them | A trustee (often a company), with an appointor who can replace the trustee |
| Who receives what | Set by your Will: fixed shares, or discretionary powers for the trustee | The trustee decides each year among the beneficiaries named in the deed |
| Tax on children’s income | Income from estate assets paid to minors is “excepted income”, taxed at ordinary adult rates | Income paid to minors is generally taxed at higher minor rates, up to the top marginal rate, so distributions usually go to adults |
| Queensland transfer duty | Property passing under your Will is generally exempt | Setting up with cash is duty-free; moving Queensland land or business assets in is not |
| Running costs | None in your lifetime; trustee and tax return costs after death | Annual accounts, tax return and trustee resolutions; ASIC fees if a company is trustee |
| Family provision claims | Assets stay in your estate, so eligible family can still claim | Assets are usually outside your estate, but control of the trust still needs planning |
| Changing it | You can change your Will while you have capacity | The deed can only be varied as its terms and the law allow |
| When to consider it | Young, vulnerable or at-risk beneficiaries; blended families; you want a say in how an inheritance is used | A business or investments to run; family members on different incomes; wealth to manage across generations |
For the full benefits of a testamentary trust, see our guide to testamentary trust Wills.
Can You Have Both?
Yes. The two trusts are not alternatives, and they often work together.
A testamentary trust can itself be drafted with discretionary powers, often called a testamentary discretionary trust. Instead of fixing each beneficiary’s share in your Will, it lets the trustee decide who receives income and capital after your death.
You can also run a discretionary trust during your life and include testamentary trusts in your Will. If you control a family trust, deal with who takes over that control in your Will, and make sure your Enduring Power of Attorney in Queensland works with the trust deed if you lose capacity. For more on drafting a Will, see what to consider when making a Will in Queensland.
Queensland Rules That Affect Your Choice
Queensland’s trust laws changed significantly in 2025 and 2026, so generic or older articles may be out of date. These are the rules that matter most when choosing between the two trusts.
- A new Trusts Act. The Trusts Act 2025 (Qld) replaced the 1973 Act on 28 April 2026 and applies to new and existing trusts, testamentary and discretionary. Trustees must act honestly, use reasonable care, diligence and skill, and keep accurate accounts that beneficiaries can inspect. Children and insolvent individuals generally can’t be appointed as trustees. Choose trustees carefully, and have older family trust deeds reviewed.
- A 125-year trust lifespan. Since 1 August 2025, the Property Law Act 2023 (Qld) lets trusts governed by Queensland law run for up to 125 years, instead of 80. Older trusts can adopt the longer period only if their deed allows the vesting date to be varied, all adult beneficiaries agree, or the Supreme Court approves. The trust also needs a genuine Queensland connection, not just a clause choosing Queensland law.
- Transfer duty. Setting up a discretionary trust with a cash-only settlement is not dutiable, but moving Queensland land or business assets into one is, and handing property out to a beneficiary later can attract duty again. Property passing from your estate under your Will is generally exempt under section 124 of the Duties Act 2001. The Queensland Revenue Office explains when duty applies to trusts.
- Land tax. Queensland assesses land held by a trustee separately, at trustee rates with a $350,000 threshold, compared with $600,000 for individuals. At the Queensland Revenue Office’s published rates, $760,000 of land attracts roughly $8,420 in land tax for a trustee, against about $2,100 for an individual. Holding investment property in a discretionary trust can therefore cost more in land tax.
- Family provision claims. A testamentary trust does not stop eligible family members (a spouse, child or dependant) applying for greater provision under the Succession Act 1981 (Qld). They must give the executor written notice within six months of death and start court proceedings within nine months, unless the court allows more time. The Queensland Law Handbook explains the process.
When to Set Up a Discretionary Trust
A discretionary trust is worth considering in situations like these:
- You run a business or professional practice. A trust, often with a company as trustee, can hold the business or its profits and share income among family members, while keeping family assets separate from business risk. It is not a guaranteed shield from creditors.
- You’re building an investment portfolio. Income from shares or rental property can be distributed each year to the family members who will pay the least tax, provided the distributions are genuine.
- Your family’s incomes differ. With a high-earning partner, a spouse at home, or adult children studying or starting work, the trustee can adjust distributions year by year.
- You work in a higher-risk profession. Builders, medical practitioners and company directors often hold family assets outside their own name to reduce exposure to claims. The structure must be set up well before any problems arise.
- You want a plan for the next generation. The appointor can pass control to a child, and with Queensland’s 125-year limit the trust can last for generations.
- You expect a windfall. A business sale or large payout can be held in a trust, which keeps flexibility over who benefits and when.
- You’re passing on a family farm or business. A trust lets you bring children into the business gradually without transferring ownership outright.
A discretionary trust is not right for everyone. It brings annual accounts and tax returns, trustee resolutions (usually by 30 June) and, with a company trustee, ASIC fees. The ATO also scrutinises distributions under its section 100A rules where someone other than the beneficiary gets the benefit. For a modest portfolio, these costs can outweigh the benefits, so ask your lawyer and accountant to run the numbers first.
How to Set Up a Trust in Queensland: Step by Step
A discretionary trust is created while you are alive:
- Get legal and tax advice first. Your lawyer explains the Queensland rules and your accountant advises on tax.
- Choose the key roles. You need a trustee (an individual or a company), an appointor who can replace the trustee, the beneficiaries and an independent settlor who is not a beneficiary.
- Have your lawyer prepare the trust deed. Governed by Queensland law, it should cover the trustee’s powers, distributions, a power to vary, the vesting date (up to 125 years) and who takes over as appointor.
- Sign the deed and settle the trust. The settlor signs and gives the trustee a nominal sum, commonly $10. Settling the trust with cash is not dutiable in Queensland.
- Register and open accounts. Apply for a tax file number (plus an ABN and GST registration if the trust will run a business) and open a bank account in the trustee’s name “as trustee for” the trust. Register a company trustee with ASIC first.
- Move assets in carefully. A trust can buy assets itself, but transferring existing Queensland land or business assets into it triggers transfer duty and may trigger capital gains tax, so get advice first.
- Run it every year. The trustee decides distributions (usually by 30 June), keeps accounts and lodges the trust tax return. Review the deed every few years.
Setting up a testamentary trust is different, because it is created through your Will rather than a trust deed. We have already explained the process in more detail in our guide to testamentary trust Wills.
Questions About Testamentary and Discretionary Trusts in Queensland?
If you’d like to talk through which trust suits your family, we’re happy to help, free of charge and with no obligation. Call us on 1300 185 636 (8:30am to 5pm, Monday to Friday) or email law@gmlaw.com.au. Whether you’re planning a testamentary trust Will, setting up a family trust or reviewing an existing deed under the new Trusts Act, our estate planning solicitors can guide you. You can also browse more estate planning guides on our blog.
