Tax Implications to Be Aware of When Drafting Your Will
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While it is important for all adults to have a valid Will, more than half of Australians don’t have one. No matter what the size of your estate is, having it distributed according to your wishes can only be performed efficiently and accurately if you have a valid Will.
When someone dies without a valid Will, they are said to have died “intestate”, and while their estate may eventually be distributed how they would have wanted it to be, it can be a costly and lengthy process that can be stressful for the parties involved and eat into any funds that make up the estate.
Having a Will is not the only important factor. The Will should be drafted by a lawyer who will be able to provide you with advice about some more complex areas, such as superannuation, which do not automatically make up part of your estate. An accountant and a lawyer will work together to consider any tax implications of your succession plan that you may not have otherwise thought of.
One of the roles of the executor or administrator of an estate will be to lodge an income tax return on the deceased’s behalf for the financial year in which they passed away. For example, if the deceased died on 12 May 2025, the executor would still need to lodge a tax return for the 2025 financial year. In some cases, tax returns may even have to be lodged every financial year until the distribution of the estate has been finalised. It is always best to speak to an accountant when dealing with tax returns.
Capital gains tax
Seeking professional advice from an accountant before selling any assets on which capital gains tax may be payable is always recommended.
Generally, however, capital gains tax may be payable if:
- An asset that makes up part of the deceased’s estate is sold by the personal representative in the course of administering the estate;
- A beneficiary of the estate sells a taxable asset they inherited from the estate; or
- A taxable asset (that is not money) is left to a charity, certain super funds or a beneficiary who is a foreign resident.
A common misconception is that once you die, your superannuation will automatically be transferred, in cash, to your child/ren, or spouse. Unfortunately, it isn’t that simple.
Superannuation is actually held by a trust, which has the power to pay your super to the deceased’s personal representative or dependant, as defined under s 10(1) of the Superannuation Industry (Supervision) Act 1993 (Cth). Anyone defined as a dependant would need to be able to prove that they were, in fact, dependant on your income at the time of your death.
In the case of superannuation being paid by the trustee to a personal representative of the deceased, it would become an asset of the estate and would be dealt with like any other asset in the deceased’s Will.
Alternatively, if a person’s Will provides for a valid binding death benefit nomination, then the superannuation trustee will not have discretion and will be compelled to pay the superannuation in accordance with the instructions in the Will. Making a binding death benefit nomination allows you to decide which portion of your superannuation is paid to each beneficiary and how it may be paid, i.e. in a lump sum, income stream or a mixture of both.
Depending on how the superannuation is distributed, it can attract tax. A solicitor can advise you on how your beneficiaries would be taxed in relation to your superannuation, based on your personal circumstances.
Unless you are dealing with taxes every day in your line of work, it can be an incredibly complicated area that requires the help of an expert. To ensure your estate is distributed correctly and does not attract an unnecessarily large tax treatment, have your Will drafted by a lawyer with the assistance of an accountant.