Accounting for Deceased Estates
When a person dies, an executor (also known as an administrator or legal personal representative) is appointed to administer the estate of the deceased person. This includes responsibility for managing the tax affairs of the deceased and most people at some stage in their lives get appointed as an administrator.
It's not an easy task particularly if you're dealing with the financial affairs of a loved one and sometimes the process can take months or even years to finalise.
A deceased estate is held in trust from date of the death of the person until the transfer of the assets to the beneficiaries specified in their will. There are income tax, capital gains tax and superannuation issues to consider for deceased estates that can include cash in bank accounts, real estate assets, shares and personal possessions as stated in the will. Superannuation and life insurance payments may or may not form part of the deceased estate. If the beneficiaries are specified in the policy or super trust deed, payments may go directly to various beneficiaries without going through the deceased estate.
Some types of income can accrue to the estate after the date of death (interest, dividends and rent) and this will also form part of the deceased estate. Some assets are excluded from the deceased estate because the deceased person made other arrangements to distribute them.
The Executor or Administrator's Responsibilities
The executor or administrator is the trustee of the estate and is responsible for administering the deceased estate in the best interests of the beneficiaries who are entitled to a share in the deceased estate. The executor is appointed by the will or if there is no will, they are appointed by the court. Note that, the laws that apply to the income and assets of a deceased person depends on which state or territory they lived in when they died. This information relates to the tax responsibilities of the trustee which are a federal requirement and we recommend you consult with us before you act on the information provided.
The tasks usually performed by the executor (or administrator) include:
- locating the will
- arranging the funeral
- applying for probate
- obtaining a death certificate
- informing financial institutions where the deceased person had accounts
- informing government bodies such as the ATO
- locating and valuing assets
- paying debts, income tax and funeral expenses
- transferring assets
- managing the deceased person's tax affairs
- distributing assets or the residue to beneficiaries.
If the will nominates more than one executor, they are jointly responsible for these tasks.
As executor, your tax responsibilities include:
- lodging a final return (and any outstanding prior year returns) for the deceased person
- lodging any trust tax returns for the deceased estate
- providing beneficiaries with the information they need to include distributions in their own tax returns and, in certain cases, paying tax on their behalf.
There are generally no death duties in Australia. However, tax may be payable on certain income or capital transactions that arise as a consequence of a person’s death.
Capital gains tax (CGT) implications of Death
When the assets of a deceased estate are distributed, a special rule applies that allows any capital gain or loss made on a CGT asset to be disregarded if the asset passes:
• to the executor
• to a beneficiary, or
• from the executor to a beneficiary.
However, if an executor sells a CGT asset of the deceased estate and then distributes the proceeds to the beneficiaries, the sale is subject to the normal CGT rules and a tax liability may arise. We have a great deal of experience calculating Capital Gains Tax implications for Estates, so please contact us to discuss this further.
Superannuation death benefits
In most cases, when a person dies, their superannuation fund will pay their remaining super to their nominated beneficiary as either a withdrawal or in some cases a pension, which is called a “super death benefit”. If there are no binding death nominations, then the trustee of the super fund will decide how the benefit will be paid. Depending upon the trust deed of the superannuation fund, and rules and regulations operating for superannuation, the trustee may pay it to the deceased estate, then the executor will deal with it accordingly. However, the super is not part of the will (except in NSW).
It is always beneficial to seek professional advice as to whether a lump sum benefit or a pension is an option, or the most suitable option for you. We are always happy to discuss these matters with you, and guide your journey through this difficult time
TRUSTEE RATES 2014/15 & 2015/16
|Share of Net Income
|Tax on Column 1
|Rate on Excess*
|* Assumes deceased died less than 3 years
before the end of the current year.
** Includes Temporary Budget Repair Levy.
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