Death and Taxes. Is there an Option when it comes to Property in a Deceased Estate?

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Ben Franklin claimed that: In this world nothing can be said to be certain, except death and taxes. 

Transfer Duty in Deceased Estates

While Australia doesn’t currently impose death taxes, the gifting of real estate in a person’s will can trigger Transfer Duty (formerly known as Stamp Duty, and yes, not technically a tax), payable by the beneficiary. This Duty payable may be minimised with careful planning in drafting the will. 

It is common that when the last surviving parent passes away, they have prepared a will that leaves their estate between their children. It is also common for the family home to be a major asset in a deceased estate, and also a very sentimental asset for those children left behind. 

Section 63 of the Duties Act 1997 (NSW) (“the Act”) provides that only nominal Transfer Duty of $50 is payable on the transfer of dutiable property, such as real estate, by the legal personal representative of a deceased person to a beneficiary of a will, when in conformity with the trusts contained in the will.

This is a considerable reduction in the Duty payable on a transfer based on the value of the real estate. 

Beneficiaries Purchasing Real Estate from the Deceased Estate

A problem arises however when one child or beneficiary wishes to buy the property for themselves, and wishes to pay out the other beneficiaries. In circumstances where the real estate is the major asset of the estate and was left to multiple beneficiaries, not only does the beneficiary need to come up with the money to pay out the other beneficiaries, but they also need to pay the Transfer Duty on the proportion of the property that they are purchasing from the estate. This is commonly in the range of tens of thousands of dollars. 

When preparing a will, it is important to consider and discuss your wishes, to help to prepare a document that not only points your assets in the right direction, but allows them to be provided in the best way possible. 

Where it is anticipated that one of the beneficiaries may wish to purchase the real estate from the deceased estate, deliberate planning can also limit the amount of Transfer Duty payable by that beneficiary.

This can be achieved where the will provides an option for a beneficiary to purchase the real estate. 

Limiting Duty Payable by Beneficiaries

If the beneficiary is provided with an option to purchase in the last will and testament, the exercise of this option is deemed to be in conformity with the trusts contained in the will for the purposes of the Act. The Duty payable would therefore be the nominal $50, saving potentially tens of thousands of dollars.

If you have questions regarding a will or a deceased estate, contact Baker Love Lawyers. 

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