Agreeing to be executor of an estate means accepting obligations to the tax office.
As the executor, you are answerable to the taxpayer for all of the estate's income and take over the deceased’s responsibilities for launching tax returns. Until the estate’s assets and income have been fully distributed, you will have to work out if you are required to lodge a trust tax return each income year.
An estate's tax return is prepared as if it were an individual. However, with the exception of capital gains tax, the estate does not inherit the tax profile of the deceased. For example, if a person had tax losses, including a capital gains tax loss, the availability of those tax losses would die with them.
If the deceased had acquired an asset before the start of capital gains tax (CGT) on 20 September 1985, any capital asset disposed of by the executor will be deemed to have been acquired by the estate at its market value on the day the person died. If an asset has increased in value since the date of death, a capital gain might be realised. On the other hand, a loss could be realised if the value of the asset has diminished since the date of death.
The initial transfer of assets to the executor does not normally raise CGT; however, there are some exceptions to this; for example, if the terms of the Will give the asset to a superannuation fund, a non-resident or a tax exempt entity.
Once an estate is fully administered, the beneficiaries will be taxed in their own right on their share of the estate's income if they sell the asset. In particular, share portfolios often carry significant unrealised capital gains.
Contact Peter McNamara for your estate planning advice today.