Estate Planning regarding Australian Law
Introduction
Tammy, a wife to Roberto and a mother of two, is the executor to the will of the estate left behind by the death of her widowed grandmother. This being the case, Tammy requires specific advice concerning an inheritance that she is to receive together with her parents and brother. On this basis, this paper will discuss how the client, Tammy, can be guided on estate planning with reference to Australian Law.
Beginning with the tax implications that may result from the distribution of assets from the estate to the beneficiaries under the will, the principal residence of the grandmother acquired in November 1985is considered a post-CGT. This is because it was acquired after the introduction of the Capital Gains Tax (CGT) on September 20th 1985. This being the case, since the deceased obtained the residence after September 20th, 1985, and passed it to the beneficiariesafter August 20th 1996, any capital gain/ loss is ignored(ATO, 2019). However, there are certain conditions to be met, for instance, if the residential property is to be sold, it should be done so within two years from the death of the grandmother and that while the residential property is being occupied by one or more of the beneficiaries, it should not at any point be used as a source of income. Moving on to rental property acquired back in June 1984, which is considered pre-CGT (Capital Gains Tax), the property is exempted from being the main residence of the deceased. If the property is used for income purposes, it would be subject to capital gains tax according to the cost base of the property. However, if the property is disposed of within a period of two years from the death of the grandmother, taxes may beexempted (ATO, 2019).
A holiday house purchased in March 2004 is subject to tax returns if the beneficiary would rent it out. Here, the details of rental income are to be included in capital gains tax, which is to be incurred by the beneficiaries. If the holiday house is to be used by the beneficiaries as a dwelling place, tax implications will only occur in the period in which they decide to sell the house where capital gains or losses depending on the cost base of the property would apply. However, disposing of the holiday house may be exempted from tax implications depending on various factors, including whether the house was used at any point to produce income and whether the deceased grandmother was a resident of Australia at the time she passed away (ATO,2019).
A parcel of listed Australian shares purchased in August 1985is exempted from Capital Gains Taxas it is considered aninvestment asset that was obtained before September 20th 1985. This means that transfer of the shares from the deceased to the beneficiaries under the will is exempted from tax unless the executor decides to sell the shares, which will, in effect, trigger a capital gains tax occurrence.Since the shares acquired by Tammy’s grandmother prior to September 1985 are tax exempted on being handed over to the beneficiaries,capital gain tax comes about when the beneficiaries decideto retain the listed shares. At this point,the cost base for the evaluation of capital gains in the future is set as the date of Tammy’s grandmother’s death (ATO, 2019).
The parcel of listed Australian shares purchased on two dates, December 1999 and May 1988,were acquired after the initiationof the Capital Gains Tax (CGT) on September 20th 1985.This means thatthese listed shares would be subjected to CGTunder the cost base of the purchase price paid byTammy’s grandmother during the acquisition of the shares.Once the beneficiaries decide to sell the listed shares, they will have to incur CGT on capital gains from theshares. On the parcel of listed Australian shares purchased in July 2012, which were earmarked as a bequest to the Red Cross, the beneficiary (Red Cross) should immediately acquire the shares as they may have notable capital gains that are linked to them. Hence if Red Cross has zero taxstatus, the shares are conveyablewith the exemption of tax being sustained on the capital gains (ATO, 2019).
On the matter of the account-based pension (ABP) BDN to Tammy’s mother,the money that if left behind by Tammy’s grandmother’s super accounton her account-based pension plan would go to the dependent who was nominated (Tammy’s mother) as a pension or lump sum. The binding death benefits (BDN)bring about wider applications when the testator is deciding on who will take over the super account on the event of the testator’s death.The BDN system, therefore, supports the distribution of super death benefits to any financial dependents (Wasiliev, 2017). However, according to the latest changes implemented in the superannuation benefitson April 1st 2020, automaticinsuranceis not readily accessible to some individuals, without prior request.Therefore, factors like missing out on contributions or rollover in an individual’s account for sixteen monthswill result in the individual lacking out on insurance in their super accounts.This may impact the beneficiary who is Tammy’s mothernegatively in terms ofreceiving the benefits from the ABP.
As the executor under the will, Tammy’s role is to administer the deceased estates on behalf of her grandmother as she acts as her personal representative.The executoris thereforeresponsible for the process of administration up to the point wherebythe entire estate is distributed to the beneficiaries. The duties and responsibilities of Tammy as the executor, therefore, include the initial endowment of the estate, which includes establishing the estate’s title and collect assets together(Romanin et al., 2019).At this part, she is to ensure thatthe contents presented in the will are valid through various court certificates and letters of administrationas evidence.The next responsibilityfor the executor is to ensure that all taxes linked with the estate are accounted for, which includes lodging tax returns. The final responsibility is administering the estate in conformity with the requirements of the will(Romanin et al., 2019).
Reference
Australian Taxation Office (2019) CGT exemptions for inherited dwellings. Ato.gov.au. Retrieved July 25th 2020, from https://www.ato.gov.au/General/Capital-gains-tax/Deceased-estates-and-inheritances/Inherited-dwellings/CGT-exemptions-for-inherited-dwellings/#Deceasedacquiredthedwellingonorafter20Se.
Romanin, E., Gordon, N., Lanham, G., Thompson, W., & Bowie, C. (2019). International Estate Planning Guide [eBook] (pp. 1-2). Retrieved July 25th 2020, from http:///IntlEstPlan-Australia2019.pdf.
Wasiliev, J. (2017). Inheritance and the $1.6m superannuation cap: Binding death nomination can help. Australian Financial Review. Retrieved July 25th 2020, from https://www.afr.com/wealth/superannuation/binding-death-nomination-can-help-with-inheritance-and-16-million-superannuation-cap-20171003-gytpvz.