Estates- Tax, Super and the other stuff

Managing a deceased estate is no easy feat for an Executor. If appointed to the task of collecting the deceased’s assets, like selling the main residence, shares, bank accounts, superannuation and other property, it can get complicated. There can be the additional challenge of dealing with the interest in private companies and family trusts.  We highlight below some of the issues in an estate administration that we see on a daily basis.

  • Tax and superannuation

It is likely that an Executor will have to deal with the deceased’s superannuation benefits as part of the estate administration process. Very often a Binding Death benefit Nomination is made directing the member balance to either the spouse or the estate. Once the executor has redeemed the superannuation death benefits, they should consider the most tax effective way to distribute these to the beneficiaries.  The executor should obtain a calculation of the withholding tax on the superannuation benefits payable to any non-residents for tax purposes. There is an obligation to withhold tax from any super paid to non-dependant, and this should be taken into account when making distributions to reflect the entitlements under the Will.

  • Find my super

During the course of a person’s life, they might become a member of multiple industry super funds. There can be substantial benefits attached to some member accounts in additional funds, including significant life insurance. Consider whether to perform a “find my super” search, with the Australian Taxation Office as early as possible in the estate administration process.

  • Interest on Bank Accounts

One of the issues in dealing with interest on the deceased’s bank accounts, is whether a beneficiary is “presently entitled” to receive that income. This will determine whether the beneficiary or the estate is liable to pay tax on the net income. A beneficiary will not be presently entitled to income of the estate until it has been fully administered. Note this does not mean that the estate has to be wound up, just that the executor makes provision for the tax payable on interest as well as all debts and all specific assets or cash payments.

  • Sale of main residence within 24 months date of death

The sale of the deceased’s main residence is generally exempt from capital gains tax as it falls within the main residence exemption. However, for this exemption to apply, the property must be sold within 24 months from the date of death. Beware of circumstances that might affect the main residence exemption, such as if the deceased’s ownership in the main residence passed to them as a beneficiary of a deceased estate, or they had rented out the property for some period of time. It is crucial to get evidence of the cost base such as original land purchase, building contract construction price and the exact dates the property was rented out and when use as a main residence resumed.

  • Cancellation of credit cards and auto debits

Credit card and auto debit facilities should be cancelled immediately to prevent identity fraud. The executor should return the credit cards to the relevant facility for cancellation. However, be aware of any loan repayments by way of a direct debit, as alternative arrangements may need to be made.

  • Estate Bank Account

It is important that the Executor opens an estate bank account for the collection of estate assets. Any income earnt on estate assets should also be paid into this account, including any dividend payments on shares and interest on bank accounts.

This serves two purposes. Not only does it assist to distribute the estate assets according to law, but it also assist the Executor to comply with their duty to account, which can be required by the Court and requires the Executor to produce a full inventory of the estate at any time during the administration.

  • Tax returns for personal, trusts and companies

The Executor is responsible for fulfilling the tax obligations of the deceased person and is personally liable for the tax payable. They will have to conduct investigations to find out whether the deceased had interest in any trusts or companies, as these will need to be declared to the Australian Taxation Office. If the estate is earning interest on assets, an estate tax return will need to be prepared and lodged. It is important to contact the deceased’s accountant to find out this information and obtain advice. 

  • Cancel passport driver license and electoral roll membership

As with credit cards, the driver’s licence of the deceased should be sent to the Department of Transport and Main roads for cancellation. The executor should request confirmation of the details of registration of any motor vehicles owned by the deceased and arrange for the interest in the motor vehicle to be transferred to the Executor.

The electoral roll should also be notified of the death. This is important, particularly if it is an election year, otherwise the estate will be at risk of incurring a fine.

If you require further information on the administration of an estate, please do not hesitate to call us and talk through any of these issues on (07) 3839 7555.