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Could the ATO Inadvertently Become a Beneficiary Under Your Will?

Avoid the common misconception that no tax is payable on the transfer of assets on death to beneficiaries under a Will

It is commonly assumed that no tax is payable on the transfer of assets on death to beneficiaries under a Will.

Unfortunately this is a common misconception in three particular cases, and can lead to large and unexpected tax liabilities, payable by the executors from estate assets.

If for example, a deceased leaves a share of the residue of his or her estate to a charity, and that charity does not have what is known as “deductible gift recipient” status, then any gains made by the Deceased on the assets bequeathed to the charity will be taxed in the deceased’s estate. This can significantly reduce the net assets available for distribution.

The same situation can also arise if the recipient under the Will is either the trustee of a superfund, or an individual who is a foreign resident, for example a child residing abroad.

Where this issue arises, Executors should take advice as to whether tax can be reduced, for example by giving specific assets to the charity, non-resident or superfund as the case may be.

To avoid such issues arising to begin with, Charities should ensure they have deductible gift recipient status funds in place and bequest programs which advise donors to make testamentary gifts to such funds so as to maximise the amount receivable.  Individuals should also be properly advised when making a Will on the unexpected tax which could reduce the estate in such circumstances.

Please contact Nikki Owen or Mathew Brittingham from the Wills, Estates and Succession Planning team if you have questions regarding this legal alert.

This Alert is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters. 

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