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Death, Taxes, Property and Retirement

You may not be the most popular person at the party but this information could make you the wealthiest

 Death. It's the only absolutely truth for human kind, yet we still pretend like it'll never happen to us. Let's see what we can do to prepare you... for the unavoidable.
Inheriting a deceased estate can be a daunting task if you are unaware of its tax obligations and other liabilities that come along with the estate. Though the Australian Government does not charge the beneficiary with an inheritance tax, but wait for it; it does have special capital gains tax that applies when the beneficiary or the executor disposes off the property. The tax man, always gets his. Always.
There can be three circumstances after a person dies:
1. Searched through the kitchen draw and still no will
It is a common belief in Australia that when a person dies without a will their estate go to the Government. This is true only when an immediate kin is not alive. The intestacy rules (ye olde rules around the pecking order of possible beneficiaries) apply when a person dies without a will.
This means that the estate will be distributed based on a legal formula, which is as follows:
  1. The partner of the deceased and their children
  2. Parents Brothers, Sisters, Nephews and Nieces
  3. Grandparents
  4. Uncles, Aunts and Cousins
  5. And Finally the Government
If partner is no longer alive, the estate is distributed among all the children equally. So on and so forth down the pecking order.
2. Mr or Mrs Organized has left a will
When a person dies with a will and has specified the details of distribution, the estate needs to be distributed as per the will. Capital Gains Tax will apply to the beneficiary, on whatever profit they make out of the estate, either via rent, or if they sell the estate off, including any shares or bonds inherited.
If you are a deceased person's legal personal representative or a beneficiary, given either of the above circumstances special capital gains tax (CGT) rules apply to the transfer of any CGT assets.
3. When beneficiaries are not presently entitled to the estate
In the case where beneficiaries are not presently entitled to the estate, the income received on the estate belongs to the estate and should be counted under the estate’s taxable income.
According to the ATO, ‘beneficiaries are not presently entitled to the income of an estate during the administration of the estate. This is because the debtors of the deceased person and any persons contesting the will may be able to defeat the beneficiaries' right to the income.’
In this case, the income is assessed to the executor/administrator and concessional tax rates apply for the first three years. This means that the estate income is taxed at general individual income tax rates, with the benefit of full tax-free threshold.
On the other hand, special progressive tax rates will apply from the fourth year onwards. For the 2012–13 income year, the special progressive tax rates are: Estate taxable income(no present entitlement).
What about superannuation I hear you ask. When a person dies, their superannuation is paid to their beneficiaries, either directly or as part of their estate. Lump sum death benefits paid to dependents are generally tax free. The taxation of lump sum death benefits paid to non-dependents and death benefit income streams depend on a number of factors.
Clearly the best scenario is where a will is produced and maintained up until the final curtain call. But often this just isn't the case. The next best bet is to seek sound financial advice.
Have you stared down the grim reaper and taken a look at your will lately?
Often your will doesn't factor as a consideration until your looking at planning your retirement, contact us today to begin looking at your retirement future.
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