Financial Planning For Beneficiaries – Tax Implications of Inheritance

Most of us prefer to not think about the death of a loved one. Unfortunately, like paying tax, it really is inevitable. But what are the results if you are the beneficiary of your deceased estate? In this article we discuss basic principles of receiving an inheritance:

A loved one is long gone away. What happens now?

A person generally known as an Executor is appointed to assemble the assets from the deceased person, pay the money they owe, and distribute the balance amongst their beneficiaries. If they had a will, this person will be appointed prior to the deceased’s wishes. If the died with no will (referred to as “intestate”), an Executor is appointed by the State.

What include the tax implications of receiving an inheritance?

As there won’t be any death duties in Australia, death itself doesn’t incur any extra tax. However, if you inherit an asset and then sell on it, you may well be answerable for Capital Gains Tax (CGT). One of your aims being a beneficiary will probably be to minimise or avoid this tax.

The home: Normally the home is exempt from CGT. The same applies should you inherit a family house provided you market it within a couple of years. Outside of this period, choosing assessed increasing fast in value since date of death during the time of sale.
Other assets: If you inherit other assets including property (other than the family home), shares, as well as other investments, you might be accountable for CGT should you sell them. It depends on whenever they were purchased. You can save money and hassle by finding out their price or their value on the date of death.
Tax returns: In the year of the deceased’s death two tax returns are required – one for that deceased person up to the date of death, then one for that estate for the remainder of the financial year. Both tax statements qualify for the full tax-free threshold. Less tax may be payable if the estate sells a property and provide you the cash instead of you having the asset and selling it.
Getting financial advice for inheritance
Knowing how to proceed after receiving an inheritance can be hard. A professional financial planner may help you in managing your inheritance to ensure that you maximise your investment potential whilst minimising the possible tax implications. For more information in order to arrange your free first financial planning selecting a financial planner inside the Sydney CBD, call us on 02 8238 0888, or complete our online form. Make sure your adviser can be a member in the AIOFP – the Peak Body for Independently Owned Financial Planners in Australia.

Financial Spectrum is a privately owned fee for service financial planning business based in Sydney, Australia. We are excited about helping website visitors to achieve their financial and life goals through holistic financial planning advice.