Estate Planning

Estate planning is to develop a strategy to deal with your assets in the event of your death.
It includes the legal instruments and structures, such as:
- a will,
- a testamentary trust (as part of your will)
- superannuation binding nominations
If you can no longer make your own decisions, the following documents may be part of your estate plan:
- any powers of attorney
- a power of guardianship – giving someone the right to choose where you live and to make decisions about your medical care
- an advance healthcare directive – your needs, values and preferences for your future care
Estate planning can be complex and challenging, but a good estate plan can make a big difference.

- Preparation of Will –
It is important to prepare a valid will. If someone dies without a valid will, it is called ‘dying intestate’, and their assets will distribute according to the inheritance laws of the states and territories of Australia.
As executor of a deceased estate (Demised person’s property and belongings that have monetary value), you need to understand your tax obligations.
- Testamentary trusts –
A testamentary trust is a trust established under a valid will, but it’s not the same trust as the deceased estate.
A testamentary trust functions in a similar way to a discretionary family trust, with certain provisions of the will operating like a trust deed.
Like any trust, a trustee of a well-governed testamentary trust will:
- properly understand the tax profile of potential beneficiaries in the light of intended tax outcomes
- lodge a tax return for every financial year that it is in existence
- maintain proper trust account records (such as trustee resolutions, detailed financial statements and reconciliations), especially where a trustee is streaming capital gains or franked dividends
- fully document capital gains tax events, cost bases, and rollovers and other concessions claimed.
Depending on who is appointed as the trustee and appointor of the testamentary trust, there may need to be a high level of co-operation between family members to ensure that necessary tax, financial and other information is shared for the trust to operate effectively.
A well governed testamentary trust will ensure that tax outcomes are achieved and, more importantly, complex family or legal disputes can be prevented.
- Superannuation Death Benefits:
All benefits are written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed except Reversionary beneficiary.
If the nomination is valid at the time of the member’s death, the trustee is bound by law to follow it.
There are broadly four types of death benefit nominations.
- Binding death benefit nomination:
This nomination is generally valid for a maximum of three years and lapses if it is not renewed.
- Reversionary beneficiary:
A member in receipt of an income stream can nominate a beneficiary to whom the payments automatically revert upon the death of the member.
- Non-binding death benefit nomination:
If the nomination is valid at the time of the member’s death, the trustee retains ultimate discretion to distribute the superannuation death benefits to the deceased’s dependents or estate.
- Non-lapsing binding death benefit nomination:
These nominations, if permitted by the trust deed, remain in place forever unless the member cancels or replaces it with a new nomination.
Trustees are required to deal with death benefit distributions according to the governing rules of the superannuation entity but are not required by law to offer any of these death benefit nominations to their members.
Capital gains tax on assets Transfer from a deceased estate
Cost base of inherited assets –
Asset acquired by deceased before 20 September 1985
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Asset acquired by deceased after 20 September 1985
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Cost Base (First Element) | Pre-CGT Asset – Market Value of the assets on the day the deceased died | Amount that the deceased’s cost base for the asset was on the day they died. |
Major Improvement |
Single Asset – Total of Cost base of the major improvement on the day the person died and The market value of the Pre-CGT asset, excluding the improvement on the day the deceased died. |
Asset acquired by deceased after 20 September 1985 –
The first element of your cost base is the market value of the asset on the day the deceased died if the asset either:
- is a property that passed to you after 20 August 1996 (but not as a joint tenant), and just before the deceased died it was their main residence and was not being used to produce income
- passed to you as the trustee of a special disability trust.
As a beneficiary, you can include (and reduced cost base) any expenditure (on the date it is incurred) a legal personal representative (LPR) would have included in their cost base if they had sold the asset instead of distributing it to you.
As the LPR, in some circumstances, legal costs you incur may form part of the cost base of the estate’s assets.
For example, if a LPR incurs costs to confirm the validity of the deceased’s will or defend a claim for control of the estate, these costs form part of the cost base of the estate’s assets.
However, not all costs incurred by an LPR having a connection to estate assets will form part of the cost base of the estate’s assets.
If the deceased died before 21 September 1999, you have the option of indexing the cost base when you dispose of the asset. Alternatively, you can claim the CGT discount. Usually, the discount will give you a better result.
Exemption from Capital Gain:
The inherited property must include a Dwelling, and you must sell them together.
You cannot get a CGT exemption for land or a structure that you sell separately from the dwelling.
Disposal within 2 years –
You meet this requirement if you dispose of the property under a contract that settles within 2 years of the deceased’s death.
It does not matter whether you used the property as your main residence or to produce income during the 2-year period.
You can extend the 2-year period if disposal of the property is delayed by exceptional circumstances outside your control.

Main residence while you own property –
You meet this requirement if, from the deceased’s death until you dispose of the property, both of the following are true:
- the property is not used to produce income
- the property is the main residence of at least one of the following people
- the person who was the spouse of the deceased immediately before the deceased’s death (but not a spouse who was permanently separated from the deceased)
- a person who has a right to occupy the property under the deceased’s will
- you, as a beneficiary, if you dispose of the property as a beneficiary.
The property can continue to be the main residence of one of the above people if they choose to treat it as their main residence (even if they have stopped living in it).
A property is considered to be your main residence from the time you acquire it if you move in as soon as practicable after that time.
Foreign residents and inherited property –
When you inherit Australian residential property:
- if the former owner of the property was a foreign resident for more than 6 years at the time of their death, you cannot claim the main residence exemption for the period they owned it
- if you have been a foreign resident for more than 6 years when you sell or dispose of the property, you cannot claim the main residence exemption for the period you owned it
- if you have been a foreign resident for 6 years or less when you sell or dispose of the property, to claim the main residence exemption you must satisfy the life events test.
If you are not entitled to the main residence exemption, CGT will apply when you sell or dispose of the property.
When the ownership of a property is shared and an owner dies, their share of the property is transferred based on their co-ownership arrangement.
Disposing of inherited assets –
Australian resident individuals, trusts and super funds can use the CGT discount to reduce their capital gain on assets they have owned for 12 months or more.
For the purposes of qualifying for the CGT discount, you can treat an inherited asset as though you have owned it since:
- the deceased acquired the asset, if they acquired it on or after 20 September 1985
- the deceased died, if they acquired the asset before 20 September 1985.
In administering and winding up a deceased estate, CGT applies, when the legal personal representative disposes of the asset subject to normal CGT rules.
In this case, you cannot use any such losses to offset your net capital gains.
If a CGT asset passes to a tax-advantaged entity, CGT applies to the deceased’s estate at the time of their death.
Links:
https://treasury.gov.au/sites/default/files/2019-03/c2019-t371937-discussion-paper.pdf
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