December 5th, 2012 |  Financial Planning, Investment Advice, Taxation

What happens when you are the beneficiary of a deceased estate?  We would rather not think about losing a loved one but, like paying tax, it is inevitable.  Here we discuss the tax basics of receiving an inheritance.

What happens after a loved one has passed away?
An Executor is appointed to gather the assets of the deceased person, distribute the balance amongst the deceased’s beneficiaries and pay their debts.  If the deceased had a Will, the Executor is appointed in accordance with the deceased’s wishes.  If they died without a Will (known as “intestate”), an Executor is appointed by the State.

Tax implications
Death does not incur any extra tax as there are no death duties in Australia.  However, if you inherit an asset and then onsell it, you may be liable for Capital Gains Tax (CGT).  As a beneficiary of the asset, you should ensure that you minimise or avoid this tax, for example:

– The family home:  The family home is normally exempt from CGT.  The same applies if you inherit a family home provided you sell it within two years.  Outside of this period, you would be assessed on the increase in value since the date of death at the time of sale.

– Other assets:  If you inherit other assets such as shares, other investments or property other than the family home, you may be liable for CGT if you sell them, depending on when they were purchased.  By finding out their purchase price and their value at the date of death, you can save time and money when the time comes to sell.

– Tax returns:  In the year of the deceased’s death two tax returns are required – one for the deceased person up to the date of death, and one for the estate for the remainder of the financial year.  Both tax returns qualify for the full tax-free threshold.  Less tax may be payable if the estate sells an asset and gives you the cash rather than you getting the asset and selling it.

Get the right financial advice for your inheritance
Knowing what to do after receiving an inheritance can be emotionally draining and confusing.  It’s important that you seek the help of a professional financial planner who can assist you in managing your inheritance to ensure that you maximise your investment potential whilst minimising the possible tax implications.

Here at The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can provide you with the total solution and assist you with all your financial planning, investment and taxation needs.  For more advice about the tax implications for beneficiaries of a Will, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.