How To Deal With A Deceased Family Member’s Assets

anthony-bell

Anthony Bell

Finance Expert

First the good news. There are no death duties, inheritance or estate taxes applied to a deceased’s assets.

The executor(s) (the person(s) nominated in the deceased’s Will to administer the estate) is responsible for lodging a final tax return (called a date of death tax return) for the financial year in which the person has died, and the deceased’s income and deductions are treated in exactly the same way as if they were alive.

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When the person passes, immediately all their assets become what is known as a deceased estate, which for tax purposes is a type of trust. Some Will’s may have a provision for a particularly type of trust called a testamentary trust. This is often a very useful inclusion in a Will and often provides for example for the provision of funds to cover expenses for children, such as their education and can also specify at what age a child may receive part or all of their share of the assets in the estate.

It is very important to seek legal advice when it comes to preparing a Will that will take into account the specific circumstances that apply to you and your family.

The executor(s) will look to “administer” the estate and obtain probate, which allows the assets to be sold and converted to cash or passed “in specie” (in their original state such a house) to beneficiaries. Exactly how this is to occur and how much and in what form each beneficiary will receive will be documented in the Will.

Capital gains tax will apply in the normal way to the sale of assets (unless they are exempt such as a family home of the deceased) and the deceased estate will have to pay this tax along with tax on any income that the deceased estate earns on its assets, such as rental income received on an investment property, less any related allowable deductions. The tax rates vary depending on how long the deceased estate has existed.

From a beneficiary’s point of view, there are no income tax or stamp duty consequences on the receipt of cash from a deceased estate. Whilst the same applies to the receipt of other assets, such as a home or investment property, there may be possible future capital gains tax consequences to consider when the property is sold.

Factors such as when the deceased acquired the property, whether they lived in the property, when you as the beneficiary sell the property and whether you live in the property, all come in to play in determining whether capital gains tax will apply.

Like most things when it comes to tax, these are broad principles and different rules may apply to you and the estate, so it’s very important to seek professional advice, particularly when it comes to assets you receive other than cash, such as properties.

So what if there is no Will?

Sadly, many people do not have a Will. This means that you have no control over who you would like to receive your assets when you die. It can also create unnecessary angst for the loved ones you have left behind.

If there is no Will, this is known as dyeing “intestate”. A suitable administrator must be appointed by the Supreme Court of NSW to administer the Will and this may not be the person who you would have chosen if a Will was made. There are specific rules about which family members will receive assets from the estate and how much they will receive. Again, this may bear no resemblance at all how you or indeed your family would have wanted your assets dealt with. The Administrator can also charge a fee for the work on the Estate.

From a taxation perspective, there is no difference in how the estate or the beneficiaries are taxed whether a Will exists or not.

 

For professional assistance: www.bellpartners.com

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