Executors Beware – There Is A Little-Known Tax On Death

Wills and Estates

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DATE PUBLISHED: July 23, 2021

ASSETS ACQUIRED BY AN ESTATE AFTER DEATH MAY RESULT IN CAPITAL GAINS TAX

Capital Gains Tax (CGT) is not usually payable on the transfer of assets from a deceased estate to an executor or beneficiary. There is a CGT exemption on death that applies to the assets owned by the deceased immediately before their death.

An estate of a deceased person can acquire assets after death where those assets were not previously held by the deceased. If this happens, and those assets are transferred out of the estate to a beneficiary, then CGT will be payable.

The estate can acquire assets that did not previously belong to the deceased in a number of ways:


1. SPOUSES DYING WITHIN A SHORT TIME OF EACH OTHER

For example, a wife and husband die within three months of each other. The wife died first and the husband took no steps to transfer the wife’s assets to himself pursuant to the terms of her will. The husband dies and the wife’s assets are transferred to the husband’s estate after his death. These assets are assets his estate is entitled to, but they have been acquired after the husband’s death. If the wife’s assets are then transferred to beneficiaries of the husband’s will, CGT will be payable on the transfer. 

If the husband had transferred his wife’s assets to himself during his lifetime, then those assets would be part of his estate on his death. There would be no CGT when those assets are transferred to the beneficiaries of the husband’s will.


2. THE EXECUTOR ACQUIRES SHARES THROUGH A DIVIDEND REINVESTMENT PLAN OR RIGHTS ISSUE.

The shares acquired under those arrangements after the will maker’s death are not subject to the usual exemption from triggering CGT.


3. PROPERTY IS CHANGED BY STRATA-TITLING, SUBDIVIDING OR MAKING IMPROVEMENTS. 

Where these changes occur after the will maker’s death, they are not subject to the usual exemption from triggering CGT.


4. A PURCHASER SIGNS A CONTRACT TO BUY PROPERTY BUT DIES BEFORE THE SETTLEMENT OF THE PURCHASE IS COMPLETED.

Notwithstanding that the contract is executed prior to death, the property does not obtain the benefit of the CGT exemption.


HOW WE CAN HELP YOU?

McInnes Wilson Lawyers can help you by:

  • Advising on CGT issues with the estate and working with executors and beneficiaries to manage CGT issues.
  • Administering estates in an efficient and timely manner, while considering CGT issues for the estate. 

If you require assistance or any further information please contact:

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