Tax issues in Estate Planning


Estate Planning | Children | Deceased Estate Taxes | Capital Gains Tax | Stamp Duty | Superannuation | Future law changes

Estate Planning

An important step in estate planning is the preparation of your Will for the benefit of your loved ones. If your Will is invalid or your Will does not distribute all of your estate assets, your assets will be distributed under relevant State or Territory laws. In WA, there is a formula for distributing estate assets under the Administration Act 1903. Depending upon the complexity of your affairs, a solicitor may be required to prepare your Will.

Estate planning also includes considering:

  1. which assets will form a part of your deceased estate;
  2. whether to establish any testamentary trusts as a part of your Will;
  3. if you intend to exclude a person, what rights does the person have under the Family Provision Act 1972;
  4. how any companies or trusts will be managed after your death;
  5. life insurance arrangements;
  6. whether you should make a binding or non-binding death benefit nomination for your superannuation;
  7. whether to establish an enduring power of attorney or guardianship;
  8. whether you want to establish an advance health directive; and
  9. whether you want to give any gifts during your lifetime to certain people.

Children & taxation

Children have higher tax rates when compared to adults, however special rules apply under Division 6AA of the Income Tax Assessment Act 1936. The taxation treatment of children is an important consideration for the preparation of your Will because of the potential tax implications for these minor beneficiaries.

Deceased estates & taxes

Depending upon the circumstances, your deceased estate may be liable to pay taxes. There are a number of common situations which include:

  1. a final tax return being lodged by an Executor resulting in an income tax liability;
  2. if you were in business, a final BAS return may need to be lodged resulting in a net GST liability; and
  3. the sale of assets by an Executor resulting in Capital Gains Tax.

Capital Gains Tax

Depending upon the circumstances, your deceased estate may be liable to pay Capital Gains Tax on the sale of any assets. Those assets can include, for example, the sale of shares and land.

Special CGT rules apply to exempt entities, superannuation funds and foreign residents because of CGT Event K3.

Stamp Duty in WA

If the beneficiaries of a deceased estate execute a deed of family arrangement to alter their entitlements to land held by a deceased estate, in WA additional stamp duty is payable by the beneficiaries which receive a greater share of the land.

Taxation of superannuation death benefits

A dependant or a person in an interdependency relationship with a person at the time of their death can apply to the trustee of the superannuation fund for the release of the deceased's superannuation benefits to them. Taxes are payable by persons who receive superannuation death benefits. The amount of tax payable depends upon:

  1. the tax-free component;
  2. the amount of the taxed element; and
  3. the amount of the untaxed element.

Risks of future changes to taxation laws

Establishing an estate plan today with the right tax advice is an important step to protecting your loved ones. However, tax laws can be changed in the future, so it is important to review your estate plan if there is a change to the taxation laws which will result in a beneficiary paying greater taxes.

Request a call back from a tax lawyer

Send us an email for a free consultation
(All fields required)