Key Points
- Australians don’t pay inheritance tax.
- An executor is appointed to help administer an inheritance.
- Inheritance is easiest when there is a Will. Otherwise, the courts can intervene.
When someone dies, everything they leave behind becomes a ‘deceased estate’. Their assets can be passed on to family, friends and organisations.
“Assets can be things of commercial value like houses or bank accounts, cars, shares or household contents, but they may also be items of sentimental value,” explains Melissa Reynolds, Executive General Manager of Trustee Services for State Trustees Victoria.
“An asset can be gifted specifically – I give my car to person A. Or it may be a legacy like I give my neighbour the sum of $10,000. Or an asset may be left generally, for example I leave the whole of my estate to my children.”
What is an executor?
A Will outlines how someone wishes their estate to be distributed after their death.
In the Will, a legal entity, known as the executor, is appointed to act as a trustee of the estate. The executor’s responsibility is to carry out the wishes of the deceased and ensure that all the obligations are met.
An executor can be a beneficiary too.
Florante Abad, who has practised law in both the Philippines and Australia, says in cases where an executor is not designated, the courts may need to intervene.
“That applicant is called the trustee or administrator,” Mr Abad says.
“So the executor is the trustee appointed in the Will, and the administrator is a trustee appointed by the Court.”
If you’ve been appointed executor but feel you can’t manage the duties, you can authorise State Trustees to act on your behalf. This government agency assists with end-of-life matters.
An executor or administrator must contact the beneficiaries and apply for ‘probate’.
Melbourne Supreme Court issued widespread Australian gagging order over political bribery allegations revealed by 'Wikileaks' today 30-July-2014 Melbourne Australia Credit: Nigel Killeen/Getty Images
What is probate?
Probate is a court order that validates the Will and permits the executor to administer the estate.
The Supreme Court records applications for probate. You can view the Supreme Court Probate Registry in your area.
Who inherits if there is no Will?
“When a person dies without a Will, this is called dying ‘intestate’,” Melissa Reynolds explains.
There’s a formula in each state set out in legislation which specifies who is to receive the estate and in what percentages.Melissa Reynolds
“The person deemed to have the greatest entitlement to the estate can lodge an application for a grant of probate, or they can authorise a Public Trustee to administer the estate.”
The formula used to distribute assets without a Will is called the Succession Act.
Although each jurisdiction differs, most assets usually go to the surviving partner, with the remainder to the children.
When there is a spouse or de facto partner and there are no children, the estate goes to the partner. In the absence of a partner or children, it goes to the next closest relative as set out in the relevant Act.
If there is nobody to inherit, the estate goes to the state.
Cropped shot of a senior couple meeting with a consultant to discuss paperwork at home Credit: shapecharge/Getty Images
What are my tax obligations?
Australians don’t pay inheritance tax, but other financial obligations exist.
The ATO applies taxation rules if you sell an inherited property.
Akram El-Fahkri, is a Certified Public Accountant. He explains that “there are no tax consequences for the deceased estate if it was the deceased’s residential house".
There is a Capital Gains Tax (CGT) exemption if the inherited residential property is sold within two years, so it’s best to seek professional advice.
Shares converted to cash will also attract CGT, and any bank interest from a cash inheritance must be declared on your tax return.
Inheriting overseas property
The same two-year window applies to overseas property.
“If it was sold within that two-year period and then the money comes to Australia, it’s declared and it falls into the Australian rules and becomes tax free,” Mr El-Fahkri says.
“The only problem would be if there are peculiar tax laws in the country it was sold in. Then perhaps the transaction would be caught by the tax regime of that country.”
Special CGT rules apply if you are a non-resident, so it’s best to seek advice.
codicil to a last will and testament and irrevocable trust being signed by a 50 year old woman. Credit: JodiJacobson/Getty Images
Can I challenge an inheritance?
If you believe you are entitled to an inheritance but aren’t included in the Will, or there is no Will, you have the right to challenge the inheritance under the Succession Act. This is called a Public Family Provision Claim.
The Supreme Court can even vary the Will.
However, no one is automatically entitled to an inheritance. You must justify your claim, Mr Abad says.
You need to establish the financial connection and how you are being deprived because the deceased died, and no adequate provisions are being provided to you under the Will. There is no hard and fast rule, but the Supreme Court will take into account the circumstance surrounding your claim.Florante Abad
Inheritance can get complicated, but help is available through organisations such as the and the . They provide lists of solicitors in your area who speak your language or practise in deceased estates.
You can also access free guides to making a Will and acting as an executor on the State Trustees websites for your state or territory.
