Episode Details

The two certainties: death and taxes

There are two unfortunate certainties in life; death and taxes. And, unfortunately, tax cannot be avoided (legitimately) even by dying.

Australia is one of the very few countries in the world that has no death taxes. However, although there is no tax levied on the property of a deceased person, there may be tax consequences flowing from the dealings with the deceased assets.

This blog outlines some of the key considerations you must address.

The deceased estate

When a person dies, an executor or administrator takes control of their assets. The executor named under the (valid) Will is known as the legal representative. An administrator is appointed by the probate court when a will does not exist.

A deceased estate is not a separate legal entity but a relationship between the executor/administrator and the beneficiaries – much like a trust. The deceased estate would comprise of all assets owned by the deceased as at the date of death – except for any assets owned as joint tenants, superannuation and any assets held in a discretionary trust.

A Will covers matters such as how the assets should be shared amongst family members and other beneficiaries, trusts to be established subsequent to death, bequests to charities and institutions and funeral instructions.

A Will is a legal document and therefore should be drafted by a lawyer preferably one who practices in the area of Wills and Probate and has tax knowledge – or at least a lawyer who would work in conjunction with an accountant who is familiar with the tax treatment of such estates.

What if you don’t have a will?

If you die intestate, the Supreme Court will decide who will be your administered and who will benefit from your estate. Dying intestate creates a lot more work, cost and stress for the people you leave behind. It also might result in people benefiting from your estate who you don’t want to benefit. Therefore, for the sake of a relatively small cost and to ease some of the stress on your family, it is always best to have a valid and up-to-date will.

If you’re a single and have little assets and no special beneficiaries, a cheap will kit will probably sufficive. However, if you have any significant assets or liability, children, a spouse and so on, you really need personalised legal advice.

Taxation of assets received from a deceased estate

Death is generally not a trigger point for taxation. Assets owned by the deceased are passed onto beneficiaries without any immediate capital gains tax consequences. When an asset passes to a beneficiary, the beneficiary becomes the owner of the asset and generally inherits the same cost base and tax treatment of the deceased.

For example, if you were to inherit the main residence of the deceased, you would be eligible for the main residence CGT exemption, if the property is sold within 2 years. If you were to inherit an investment property held by the deceased, and sell it at a later stage, your cost base would be the purchase price (plus costs) initially paid by the deceased person.

Controlling assets from the grave

Often people wish to regulate the time/age their beneficiaries obtain control of the estate. For example, it is best to avoid a situation where a beneficiary inherits a substantial amount of money when they are not mature enough to make prudent financial decisions, may be under the influence of an addiction (such as gambling or drugs) or at risk of a relationship breakdown. The best way to accommodate these risks is to provide your executor with clear instructions and e