deceased estate

Deceased estate: Things to know

Posted on Posted in Capital Gains, Tax Planning, Taxation

Deceased estate: Things you need to know

Dealing with a deceased estate is something most of us will have to deal with at some stage. There are different laws for each state so always seek legal or independent advice if acting as an Executor

What the estate comprises

The property and assets belonging to a person who has died, called their deceased estate. They may include: –

Real estate, money in bank accounts, shares, and personal possessions. Other assets that are owned as joint tenants do not form part of the estate.

The deceased estate holds the assets of the deceased in trust from the time of the death of the person concerned until the transfer of the property and assets to their beneficiaries as nominated in their will. It is administered by either:

  • an executor appointed in the person’s will, or
  • an administrator appointed by the Supreme Court.

Being an executor

If you have been appointed as an executor or administrator of the estate, you will be responsible for managing the deceased estate’s tax affairs, as well as:

  • carrying out (executing) the terms of the deceased person’s will
  • complying with the relevant inheritance laws, where there is no will.

The executor or administrator (this information applies equally to both) is responsible for administering the deceased estate in the best interest of the beneficiaries nominated in the will (or if no will exists, the deceased person’s next of kin or other person according to a state or territory law).

Tasks usually performed by an executor can, but may not always, include:

  • applying for probate
  • informing investment bodies of the death – these might include banks and share registries
  • locating assets and having their value assessed
  • paying debts, income tax and funeral expenses
  • transferring assets and paying stamp duty
  • distributing the surplus to beneficiaries.

Tax responsibilities

There are generally no death duties in Australia. However, tax may be payable on certain income or capital transactions that arise as a consequence of a person’s death.

As an executor, your tax responsibilities include:

  • lodging a final return, and any outstanding prior-year returns, for the deceased person
  • lodging any trust tax returns for the deceased estate
  • providing beneficiaries with the information they need to include distributions in their own returns and, in certain cases, paying tax on their behalf.

Capital gains tax (CGT) implications

When the assets of a deceased estate are distributed, a special rule applies that allows any capital gain or loss made on a CGT asset to be disregarded if the asset passes:

  • to the executor
  • to a beneficiary, or
  • from the executor to a beneficiary.

However, if an executor sells an asset of the deceased estate and then distributes the proceeds to the beneficiaries, the sale is subject to the normal rules and CGT applies. Basically this means, in most cases, the transfer of CGT assets into a deceased estate and then out to their beneficiaries will not incur an income tax liability.

The executor has up to 3 years to administer the estate and benefit from the trust being taxed at normal individual tax rates. Seek professional tax planning and advice from the team at Peter Mansour & Co

Related links: – Australian Taxation Office Deceased Estates