Most of us would rather not think about the death of a loved one, although, like paying tax, it is inevitable. But what happens when you are a beneficiary in a deceased estate?

Someone will be appointed to gather the assets of the deceased person pay their debts and distribute the balance amongst their beneficiaries. If they had a will, the executor appointed in the will does the job according to the deceased’s wishes. If they died intestate (without a will), an administrator is appointed according to the formula set out in the relevant state’s Succession Act.

As there are no death duties in Australia, death itself does not incur any extra tax. However, if you inherit an asset and then sell it you may be liable for Capital Gains Tax (CGT). One of your aims as a beneficiary will be to minimise or avoid this tax.

The family home
Normally the family home is exempt from CGT. The same applies if you inherit a family home provided you sell it within two years. Outside of this period, you would be assessed on the increase in value since the date of death.

Valuing assets
If you inherit assets such as property, shares and other investments, you may be liable for CGT if you sell them. Just how much depends on when they were bought. You can save money and hassles by finding out purchase price of the assets or their value at the date of death.

Estate tax and your tax
In the year of death, two tax returns are required – one for the deceased person up to the date of death and one for the estate for the rest of the year. Both tax returns qualify for the full tax-free threshold. Less tax may be due if the estate sells an asset and gives you the cash rather than you getting the asset and selling it.
If you are a beneficiary of a substantial estate it will pay you to take an active interest in how the estate is administered. We can guide you through this minefield safely.

Footnote:
Do you have an up-to-date will? Remember dying intestate means state laws decide who gets your money and your beneficiaries may be inconvenienced by delays and disruption.

For more Financial Planning advice, contact us at Leenane Templeton on 02 4926 2300

Sources:
Australian Tax Office website www.ato.gov.au Deceased estate and capital gains tax

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1. Who should you appoint as your beneficiaries?

While you can leave your estate to pretty much anyone you like, you do need to be careful. Challenges against a Will often occur when people feel they haven’t been provided for fairly. If you think your Will is likely to be challenged, you may want to leave a letter of wishes. This is an additional document explaining why the Will has been drafted in the manner chosen and can be referred to when a claim is being defended.

2. What assets do you want your beneficiaries to receive?

While some people feel the need to specifically gift every asset they own, a lengthy list of gifts is usually not encouraged. Assets held at the time of making your Will (and their value) may differ significantly from the assets owned at the time of death. It can therefore be a good idea to only gift a small number of specific assets in your Will and assign a percentage of the remainder of the estate to each beneficiary.

3. Who should you appoint as your executor?

Your executor is responsible for a range of tasks, such as locating the Will, organising the funeral, arranging probate, collecting the assets, repaying debts and distributing the assets. When choosing your executor, make sure you select someone who is trustworthy, in tune with your objectives, and capable of performing this very important role.

While some people appoint a family member as their executor, a Trustee company can be a good alternative – particularly if your Estate is complicated and/or suitable friends or family are not available. A Trustee company provides expert administration and legal services and charges a fee, typically paid from your Estate, after your death.

4. Should you establish a testamentary trust?

A testamentary trust is a special type of trust that comes into effect upon your death, if you have included specific provisions in your Will. Because the Trustee owns and controls the assets, your estate can be protected from a number of potential risks and your beneficiaries can be provided for in a tax-effective manner.

Naturally everyone’s situation is different and we recommend you speak to one of our Financial Adviser's to find out more.

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