1. What is actually in the budget about trusts?The budget proposes a 30% minimum tax on trusts, which could see some individual beneficiaries on lower tax rates paying more tax overall.At the moment, there’s no minimum tax rate on trusts. Discretionary trusts allow income earned from assets held by the trust – such as a business, property or shares – to be split with family members, like a non-working spouse or adult child, paying lower tax rates on the income.The changes only apply to new discretionary trusts – Chalmers has explicitly said deceased estates, fixed trusts and existing testamentary discretionary trusts are all exempt from the changes. With testamentary discretionary trusts, a trustee is appointed and has discretion to direct income and divvy up assets from a deceased estate.Sign up for the Breaking News Australia emailThese “testamentary” trusts are used as a way to keep assets quarantined within the structure and can be used to keep them safe from underage children, for example. They can also be used to create an income stream for disabled dependents.But economists and experts have long argued discretionary trusts are a loophole essentially used as a tax minimisation strategy for the wealthy.There were about 10,500 testamentary trusts in operation in 2022-23, according to the latest figures from the Australian Taxation Office – and most are “discretionary”. That compares with roughly 840,000 discretionary trusts in total.2. Does that amount to a ‘death tax’? The shadow treasurer, Tim Wilson, has called the budget’s trust changes a “death tax”. A similar claim went viral during the 2019 election, with an onslaught of social media misinformation claiming wrongly that Labor had plans for an inheritance or estate duty.The opposition leader, Angus Taylor, has defended people using such trusts for “honest reasons”, claiming the changes were a “death tax by stealth”.That’s plain wrong, according to several tax experts.“The federal budget changes do not levy a tax directly on the capital value of inherited assets,” says Tony Martins, principal supervisor at UNSW’s tax and business advisory clinic. He adds the budget also does not propose any upfront tax on the total value of an estate when a person dies.Stephen Bartos, a professor of economics at the University of Canberra, is equally definitive.“There’s no death tax being introduced in the budget, that is a complete furphy,” Bartos says.“The only reason to set up a discretionary trust is to allocate moneys to people who aren’t earning anything as a way to minimise tax. The changes don’t apply to existing trusts, so if you’re worried, just don’t set one up.”“These changes apply to only a very, very small number of people who employ very vocal accountants who are mounting this campaign.”Chalmers has said if people want their testamentary trust to avoid the 30% minimum tax, they can still set up a fixed trust, where the distribution of the assets and income from those assets are fixed in the will.What the budget does propose, says Martins, is changing how income and capital gains generated by some of these inherited assets are taxed, starting from July 2028.“Because this minimum tax removes the longstanding advantage of distributing trust income at a beneficiary’s lower personal tax rate, families will pay significantly more tax on the earnings their inheritance generates,” he says.Lisa Greig, a tax lecturer at the University of Melbourne, agrees the proposed minimum tax rate on testamentary discretionary trusts is “not a death tax as such”. But it will increase how much tax is paid on wealth moving between generations, assuming people stick with these trusts and don’t change their tax affairs.“That’s where it’s a death tax by stealth,” Greig says.The respected independent economist Saul Eslake also rubbished claims this constituted a “death tax”.“No, I don’t believe this is a death tax.”3. Even if this isn’t a death tax, would that actually be a good idea?That’s an even more contentious argument in Australian politics – but Eslake reckons it shouldn’t be, and that this fight “opens the door to a debate we ought to be having”.“We are an outlier among advanced economies in having no form of inheritance tax. Only 12 of 36 OECD members have no form of tax on estates or inheritances,” he says, noting the UK and the US had estate or inheritance taxes on large inheritances.Eslake said in the next two decades, an estimated $5.5tn in wealth will transfer from ageing baby boomers to their descendants, and that Australia’s ageing population would put even greater strain on health and aged care systems.“Why shouldn’t some of that $5.5tn be used to help to pay for their aged care?” he ventured, suggesting Australia could look at a 30% tax – which should be indexed – on estates above $8m or on inheritances over $1m.“Somehow, in Australia, to suggest we should have an inheritance tax – it paints you as a raving communist.”