The receipt of inheritance brings both financial and emotional considerations.  Financially, an inheritance will more often than not improve one’s financial position by allowing debt to be paid down or the wealth base to increase.  Emotionally, the loss of a loved one is never easy, or the responsibility of applying the inheritance to ensure a ‘legacy’ is left may become a real burden.

For Age Pension recipients, there are additional considerations.

Centrelink assessment of an interest in a deceased estate

An individual’s interest in a deceased estate is an assessable asset once it is received or can be received.

It can take considerable time to finalise an estate, it is accepted that a beneficiary is unable to receive their interest in a deceased estate for up to 12 months from the death of the testator.  However, if the estate is finalised earlier the interest will be assessed from the date it is received or able to be received.

If after 12 months of the death of the testator the estate has not been distributed, Centrelink may consider the facts of the case to determine what is preventing the estate from being finalised.  If a beneficiary has contributed to the delay, their interest will be regarded as being available.

If the beneficiary is not the executor and the executor has discretionary power on how the estate is distributed, Centrelink will accept that the beneficiary has no control over the delay.  Also, Centrelink will accept that where the estate debts are yet to be paid the estate interest cannot be received.

Deprivation provisions are intended to limit the potential for recipients to avoid the assets and income tests. They apply to a person’s interest in a deceased estate or superannuation fund if the person:

• Waives their right to their interest in the deceased estate or superannuation fund and the person obtains no, or inadequate consideration.
• Directs the executor of the estate or trustee of the superannuation fund to distribute their interest in the deceased estate or superannuation fund to a third party and the person obtains no consideration or inadequate consideration.
• Gives their interest in the deceased estate to a third party after the estate has been finalised for no or inadequate consideration, or
• Gifts their interest in a superannuation fund.

Once a person’s interest in a deceased estate is assessed, the value of this asset or the deemed income may reduce that person’s age pension entitlement, possibly to zero.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

When a person dies, generally the responsibility for administering the deceased estate falls to the legal personal representative. This person may be an executor or administrator who has been granted a court’s probate or letters of administration. It is important to note that while there are no inheritance or estate taxes in Australia, the legal personal representative is likely to have important tax and superannuation issues to attend to.

It is important to notify the ATO and the deceased person’s super fund of the death as early as possible. The ATO will determine whether a tax return is required for the deceased person and the super fund will commence a process for the release of any superannuation entitlement. A formal death certificate will be required to fulfil an official notification of death.

Accessing information from a deceased person can sometimes be tricky. You’ll need to have probate granted or a letter of administration. In the past, tax agents, BAS agents or legal practitioners engaged by a legal personal representative were unable to access this information directly. However, effective from 15 May 2020, the legislation has been modified to allow information from a deceased person to be provided to these agents directly, given the complications associated with the tax affairs of deceased estates. A deceased estate data package will also be provided by the ATO, which includes;

• Individual tax return information for the last three income years.
• An extract of income and investment data for the last three income years.
• An extract of notices of assessment issued for the last three income years.
• Copy of the most recent statement of account.
• Any outstanding ATO debts.
• Any superannuation accounts identified.
• Payroll data received for the current year.

From here, an assessment is made as to whether an individual tax return or trust tax return is required for the deceased person and their estate. All outstanding tax implications involving employment income, investment earnings and superannuation distributions will be assessed and any tax payable or refunds are applied to the deceased’s assets.

As a beneficiary of a deceased estate, there may be some tax obligations depending on the following factors;

1. Receiving super benefits – if the deceased person had super, the super fund’s trustee will work out who to pay the benefit to and how it will be paid (lump sum or income stream). If a Binding Death Nomination is in Place, the superannuation trustee will follow those instructions. Whether tax is payable depends on whether the beneficiary is a dependant under taxation law, whether it is paid as a lump sum or income stream, the breakdown of the tax-free and taxable components of the fund, the ages of the beneficiaries and the age of the member when they died. For most funds, there will be some tax payable unless you are a spouse or financial dependant of the deceased.
2. Receiving investment assets – Capital Gains Tax (CGT) will apply to the disposal of an asset, however, if you receive an asset, you will not be affected by CGT. If you later sell that asset, CGT may apply.
3. Receiving/earning income – income is deemed assessable from the date of entitlement rather than the date of payment. Beneficiaries need to be conscious of reporting such income in the year of entitlement.

There is no one size fits all approach regarding deceased estates and it is usually a long-drawn process. It is highly recommended that you engage the accountant or financial adviser of the deceased and employ a legal practitioner to assist with the process.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.