Does a Transfer of Real Property to a Testamentary Trust Need FIRB Approval? What You Must Know

If you are an estate planning practitioner, you have hopefully heard of FIRB (at least in passing).

FIRB is the acronym for the Foreign Investment Review Board. It derives its powers under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).

Most people think of FIRB as the government body regulating foreign investment in Australia, such as large overseas corporations buying Australian farms or foreigners purchasing Australian real estate. Little is heard of the implications FIRB has for estate planning.

Old Law

Prior to 1 January 2021, FIRB approval was not required if an asset was acquired or transferred under a will. Most estate planning lawyers had the luxury of simply ignoring FIRB as being outside their scope of practice.

New Law

On 1 January 2021, an amendment to the Foreign Acquisitions and Takeovers Act took effect. The word “will” was removed from the exemption in section 29 of the Foreign Acquisitions and Takeovers Regulation 2015 (Cth), resulting in transfers pursuant to a will no longer being exempt, and require FIRB approval if there is a transfer to a foreign person.

While there was some noise when the amendment was first introduced, few practitioners are discussing practical strategies for dealing with it in the field of estate planning.

Implications Under the New Law

The 2021 amendment effectively means that unless the testamentary trust deed excludes foreign persons, any transfer of residential property to a testamentary trust will require FIRB approval.

1. Surprising Definition of “Foreign Person”

You might think this will not affect your practice because you do not deal with estates involving foreign beneficiaries.

However, this is where it gets complicated: every testamentary trust or family trust is deemed to be a foreign person, unless the trust terms expressly exclude foreign persons as beneficiaries.

Unless you have an express exclusion clause, a discretionary trust (including testamentary discretionary trusts) is treated as a "foreign person" because the range of potential beneficiaries is so wide that the actual beneficiaries are not easily ascertained.

FIRB does not check whether the current beneficiaries are actually foreign persons themselves.

If the deed does not expressly exclude foreign persons, the trust is legally a foreign trust. Therefore, the trust is treated as a foreign person purchasing Australian residential property, and FIRB approval is required.

2. Non-Refundable Five-Figure Fees

You may be forgiven for thinking that it is not a big deal to go through the FIRB approval process. However, the application fees are almost punitive in nature and are increased regularly.

As an example, for the 2025 financial year, if the residential property is worth between $75,000 and $1 million, the FIRB application fee is $44,000.

If the property is worth between $1 million and $2 million, the fee is $88,000. Between $2 million and $3 million, the fee is $177,000.

These fees are non-refundable, irrespective of whether approval is granted.

Exposing your clients’ beneficiaries to this unnecessary administrative cost is a decision that must not be taken lightly, and is not something that estate practitioners want to overlook.

3. Threshold Value

Prior to the amendment, for several types of property transactions, FIRB approval was only required for high value property transactions over a certain threshold value.

However, as part of the change to exclude deceased estate transfers, the threshold value for residential property was reduced to $0. That means that no matter the value of the residential property, FIRB approval will be required.  

What Does This Mean for Estate Planning Lawyers?

If you have not addressed the issue of foreign persons in your wills, then you must review them immediately.

Foreign Person Exclusions

If you are drafting a testamentary trust will, and the will does not specifically exclude foreign persons as beneficiaries, that trust is considered a foreign person.

While outside the scope of this blog post, this issue goes hand in hand with the State-based foreign person land tax and/or stamp duty surcharges which must also be considered.

"Foreign Person Excluded" Testamentary Trust

Many testators do not want to take the drastic step of including a blanket exclusion of foreign persons from their testamentary trusts. This is a very reasonable response, considering the testamentary trusts are intended to be multi-generational ongoing wealth accumulation vehicles. In today’s society, it is impossible to predict whether their future descendants will be deemed ”foreign persons” under the Australian law.

To manage these concerns, at The Art of Estate Planning, we have developed an approach called a "foreign person excluded” testamentary trust.

In this approach, the will contains a standard testamentary trust with a full range of beneficiaries. However, an additional provision gives the executor the discretion to establish a separate special purpose testamentary trust for the purpose of receiving any residential property. This special purpose trust is identical to the first testamentary trust, except that foreign persons are strictly excluded as beneficiaries.

The executor then has the power to distribute any residential property that needs FIRB approval to that special purpose “foreign person excluded” testamentary trust, and the other assets in the estate to the main testamentary trust. This provides the flexibility to ensure assets can still access the benefits of the testamentary trust environment, whilst ensuring that FIRB approval is not required.

For a reminder of testamentary trusts and their benefits, see this blog post: ”What Is a Testamentary Trust” .

Who is responsible for the FIRB application fee?

As mentioned above, the FIRB application fees are significant and non-refundable. Who shells out that $44,000, $88,000 or $177,000?

In your drafting for both basic and testamentary trust wills, it must be clear how the application fee is to be funded (e.g. is it to be funded by the gift recipient or from the residue of the estate?) and what happens to the gift if approval is not granted.

On 16 February 2025, the Australian Government announced that from 1 April 2025 until 31 March 2027, foreign persons (including temporary residents and foreign-owned companies) will be temporarily banned from purchasing established dwellings in Australia, unless an exception applies, resulting in a significant reduction in approvals granted.

You also need to factor in the significant delays involved in waiting for FIRB approval.

Review Your Precedents

It is vital to review your testamentary trust precedents. If you are using a pre-2021 template, it almost certainly does not account for these FIRB issues.

There is a need to factor that in head on and decide as a firm, how to deal with the FIRB application. What is your firm’s policy about this issue? What are the changes needed in your firm’s testamentary trust precedent?