Tax and Estates
There may not be death duties in Australia, but there are certainly tax considerations and tax implications when dealing with estate assets and superannuation death benefits. How you deal with these can make a big difference to the tax position.
An important part of administering a person’s estate after their death is ensuring that their tax affairs are up to date (for the deceased personally and also for the estate). This is a personal responsibility of the executor. It is also the executor’s responsibility to maximise the value of the estate for the beneficiaries.
Creating a Tax and Distribution plan to save on tax
An executor of an estate should develop an estate ‘Tax and Distribution’ plan which considers the taxation implications of the sale or transfer of assets, and which considers the timing of any sale or transfer. The plan should be done in consultation with your estate administration lawyer and an accountant experienced in the taxation of deceased estates.
A successful distribution plan will consider if the appropriation (specific allocation of an asset to a particular beneficiary) can legitimately minimise the tax burden for the estate as a whole, and/or for that particular beneficiary. Examples include:
- allocating superannuation death benefits to beneficiaries who are tax dependants
- whether to sell or transfer a deceased person’s main residence
- whether to sell or transfer investment assets (e.g. shares, properties)
- considering complications due to foreign beneficiaries
Putting the right strategies in place can save you money
At Estate First Lawyers, we can assist you with the tax planning for distribution, in consultation with the estate accountant, to ensure the estate is maximised for the benefit of the beneficiaries. We also offer the full range of estate administration services to ensure the entire process runs smoothly during this difficult time.
Frequently Asked Questions
What tax affairs must be dealt with when a person dies?
The executor of a deceased estate must ensure that a deceased person’s tax affairs are up to date and all liabilities are paid (and any refunds due are claimed). This includes ensuring all tax returns up to the person’s death have been lodged, and any estate returns from the date of death until the last financial year of the estate’s administration are also completed.
Why is having a tax effective strategy in a deceased estate important?
An executor or administrator has a responsibility to maximise the value of an estate for the benefit of the beneficiaries. While they also must ensure any legal obligations are met (including paying any applicable Federal or State taxes), they should also ensure they do not incur additional expense and liability which may waste away the estate. This forms one of the risks of acting as an executor and Estate First Lawyers can help you minimise this personal risk.
What is ‘appropriation’ and why is it important?
Appropriation is the allocation of certain assets or proceeds of assets from a deceased estate or trust to particular beneficiaries as part of their entitlement or share of an estate or trust. It is an important part of the administration of an estate because certain beneficiaries are able to receive, or continue to hold assets, in a tax effective way. This allows the executor to achieve one of their core responsibilities, to maximise the estate for the beneficiaries.
What tax issues should an executor be aware of?
Executors should seek specialist tax advice from an estate administration lawyer, and an accountant who specialises in estate work, regarding their obligations, as the tax issues which can arise in a deceased estate are varied, complex and potentially significant. They include possible issues associated with capital gains tax, superannuation death benefit tax, land tax, transfer duty, income tax and possible taxes associated with foreign beneficiaries or foreign executors/trustees.
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