The Deceased Estate

The Deceased Estate

 

The Parties

 

The Deceased Estate

The assets and cash that belong to a person who has passed away is known as there deceased estate. A deceased estate takes the form of a trust which comes into existence at the time of a person’s death and then ceases to exist when it has been fully administered. Like other trusts, a deceased estate is not a legal entity in its own right; rather it involves a relationship between the trustee (the executor of the estate) and the beneficiaries.
 

The Executor

This person is effectively the trustee of the deceased estate. As such, they control the assets held in the estate for the benefit of the beneficiaries. An executor is appointed by the deceased person in their will. If the will does not name an executor or if the person appointed cannot discharge the duties of an executor, the courts step in and make the appointment (they will typically appoint a family member).

The role of an executor is central to the whole process. It falls to the executor to step into the shoes of the deceased person and administer their affairs. Typically they will discharge the following duties:

  • Arrange the funeral
  • Locate the will
  • Make the probate application
  • Obtain the death certificate
  • Inform investment bodies of the death
  • Notify Centrelink
  • Locate and assess the deceased’s assets
  • Pay debts, income tax, etc, and
  • Distribute income and assets to beneficiaries of the deceased estate.

 

Beneficiaries

These are people that share in the assets and income of the deceased estate. The beneficiaries are usually named in the deceased’s will, but if no will exists then it is usually the deceased’s next of kin who will be made the beneficiaries.

 

The Administration Process

  • Taxpayer passes away
  • Executor appointed either via a will or if no will then appointed by the Courts

A will is the legal document which directs the executor to deal with the deceased’s assets in accordance with their wishes. If the deceased did not leave a will, then they have died ‘intestate’. In such a case, the Supreme Court will appoint an executor and they will be required to distribute the assets according to the succession laws of the relevant State or Territory.

  • Probate applied for

Probate, which must be applied for by the executor, is granted by the Supreme Court of the relevant State or Territory. Probate gives the authority for the executor to deal with the assets of the estate, and must be applied for before any distributions take place.

Where a person believes they have an entitlement to part of a deceased estate, they may contest the will prior to the granting of probate. Once probate is granted, the assets then vest with the executor, and no further challenges can then be made against any distribution.

  • Assets vest in executor to administer the estate

 

Tax Obligations

The executor of a deceased estate assumes certain taxation responsibilities on behalf of the deceased person. Such responsibilities include:

  • Lodging a final income tax return for the deceased (known as the “date of death return”);
  • Applying for a tax file number for the deceased estate if a tax return is required to be lodged;
  • Preparation and lodgement of the deceased estate’s income tax return if required;
  • Making distributions to beneficiaries; and
  • Paying tax on behalf of beneficiaries when
    (a) they are under a legal liability or
    (b) where there are no beneficiaries that are presently entitled to the income of the estate.

Where a deceased person would have been required to lodge an income tax return this obligation is fulfilled by the executor. This “date of death return” covers the period from the previous 1 July up until the date of death (normal income tax rates apply).

Following the date of death, the estate may continue to receive income from a variety of sources or pay expenses. Where this occurs, the executor will be required to prepare and lodge a trust income tax return in order to determine the taxation liabilities in respect of that income.

Disclaimer : Information contained in this article represents general comments only and should not be taken as advice.

Information taken from the Australian Tax Reporter.