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Meet the tax obligations of an estate

We will tell you what the estate owes and what you must not distribute until it is paid.

An executor who distributes an estate before its tax is settled can be personally liable for the shortfall. That is the fact that matters most and the one least often mentioned. The estate usually needs a return to the date of death, and one or more returns afterwards. Assets passing to beneficiaries generally do so without triggering capital gains tax at that moment, but the liability moves with the asset rather than disappearing. Getting the sequence right is the executor’s protection.

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Your personal exposure closed

An executor who distributes before the tax is settled can be left personally liable for the shortfall.

Transfer or sell, decided on the numbers

Passing an asset to a beneficiary and selling it produce different outcomes, and the choice is usually yours.

A finalised estate, not an emptied one

The estate closes with the returns lodged and the position settled, so nothing reopens later.

What tax does a deceased estate actually have to deal with?

A deceased estate has two distinct tax lives. The first is the person’s own, which requires a return covering the period to the date of death. The second is the estate’s, which is treated as a trust and lodges its own returns while it administers assets. Australia has no inheritance or death duty, which leads many executors to assume there is nothing to do. What exists instead is income tax during administration, and capital gains tax that passes to beneficiaries with the assets.

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Is there death duty or inheritance tax in Australia?

No. Australia abolished death duties decades ago. What remains is ordinary income tax on income the estate earns during administration. Capital gains tax generally passes to beneficiaries along with the assets. The absence of a death duty is why many executors assume there is nothing to do.

Can I be personally liable as executor?

You can, particularly if you distribute the estate before its tax liabilities are settled. Once beneficiaries have been paid, recovering the money is difficult. Establishing the position before distributing is the protection, and it is the main reason to take advice early.

Is it better to transfer an asset or sell it?

It depends on the asset and on the beneficiaries. Transferring generally passes the capital gains position to the beneficiary to deal with when they eventually sell. Selling within the estate can crystallise a gain in the estate itself. The better route differs case by case.

What is a testamentary trust and why does tax matter to it?

It is a trust created by a will rather than during someone’s lifetime. Income distributed from one to minor beneficiaries is generally taxed at ordinary adult rates, rather than the penalty rates that usually apply to minors. That makes the tax treatment a genuine reason to use one.

Find out what the estate owes before you distribute

Tell us what the estate holds and what has been lodged. We will set out the returns required and what has to be settled before any distribution.

Distribute too early and the liability becomes yours

You are an executor, and you want to finalise the estate so the beneficiaries can move on. The pressure to distribute is real, and it usually comes from people who are grieving. What is not obvious is that distributing before the tax position is settled can leave you personally liable for what the estate still owed.

We will prepare the tax position to the date of death, including any unlodged earlier returns.
We will identify the returns the estate must lodge during administration.
We will advise whether to transfer or sell each asset, and what each choice costs.
We will advise on the taxation of any testamentary trust created by the will.
We will tell you what can be safely distributed, and at what point.

You are the executor and the beneficiaries are asking when

Someone has died and you agreed to act, probably years ago and without much thought about what it involved. There is a house, some investments, perhaps a superannuation benefit and a business interest. The beneficiaries are family, and they are asking reasonable questions about timing. You want to do this properly, and you are not certain what properly requires.

What's included in your estate tax advice

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Date of death tax position, including earlier unlodged returns.
Estate return requirements for the administration period.
Capital gains analysis for transferring against selling each asset.
Testamentary trust taxation advice, including minor beneficiaries.
A distribution clearance setting out what can be paid out, and when.
Advice on the executor's personal exposure at each stage.

The distribution that could not be undone

The risk in administering an estate is not usually getting a return wrong. It is distributing before the position is known.

Once the money has gone to beneficiaries, recovering it is a practical problem rather than a legal one. Beneficiaries spend inheritances. They pay down mortgages, they buy things, and some of them live overseas. An executor who has distributed and then receives an assessment must seek repayment from people who no longer have the money. None of them did anything wrong.

The liabilities that produce this are ordinary ones. Income earned by the estate during a long administration. A capital gain crystallising when the executor sells an asset rather than transferring it. Unlodged returns from years before the death that nobody knew about. None of these is dramatic. They simply have to be found before the estate is emptied rather than after.

From an estate you hope is clear to one you can safely distribute

We establish the full position before anything is paid out. That means the date of death return, plus any outstanding returns from earlier years. It also means the returns the estate lodges while it is being administered.

Then we work through what the assets will do. Transferring an asset to a beneficiary and selling it produce different outcomes, and the choice is often the executor’s. Where a testamentary trust is created by the will, we advise on how income is taxed in it, including the treatment of minor beneficiaries. When the position is settled we tell you what can safely be distributed, so the estate is finalised rather than merely emptied.

How we settle an estate's tax position

Settle the position first, then distribute with confidence.

Establish the position

We prepare the date of death position, and identify every return the estate still has to lodge.

Decide on the assets

We advise whether transferring or selling each asset produces the better outcome for the beneficiaries.

Clear the distribution

We tell you what can be distributed and when, so the estate closes without leaving you exposed.

The estate's position settled before anything is distributed

Acting as an executor is a job people accept out of love and discover is administrative. Doing it while grieving, for people who are also grieving, is genuinely hard.

Two of our lawyers are full members of the Society of Trust and Estate Practitioners. One of our lawyers is a Chartered Tax Advisor with The Tax Institute and has held that credential for 25 years. We are also recognised in Doyle’s Guide for tax law. That combination is the reason we do this work. Estate tax sits exactly between succession and revenue law, and advisers usually have one or the other.

Our great lawyer guarantee

Six principles we hold to, whatever you bring us and however long it takes.

Take the time

We listen carefully to understand what you want to achieve, then step you through the advice and the documents.

Share our knowledge

We pass on as much as we can, so you can make your own informed decisions.

Stick to our knitting

We only do what we are good at, so you never pay for our learning.

Work as one team

Someone is always available to answer your question or point you the right way.

Fair pricing

A fixed or capped quote for advice and documents, so you do not carry the price risk.

It is your show

We are in it for a front row seat to witness your success, not for our egos.

Distribute the estate safely

Tell us what the estate holds and what has already been lodged. We will settle the tax position and tell you what can be distributed, and when.

Speak to a lawyer 1300 654 590