Why is losing a loved one so taxing?

By David Foulds - November 6, 2017

When a loved one dies, a number of tax obligations falls to their executor, including preparing a "date of death" income tax return.

From the date of death onward, the estate becomes responsible for the tax consequences of the income and expenses arising from managing estate assets. 

An important question arises - when does the obligation to deal with tax on income arising from estate assets pass from the estate to the beneficiaries of the estate? 

The beneficiaries become presently entitled to the estate income and bear the tax consequences of that income when the estate becomes "fully administered". 

An estate is considered "fully administered" when:

(a) all of the assets of the estate have been ascertained;

(b) provision has been made for specific gifts or legacies referred to in the Will;

(c) all the estate’s debts have been identified, paid, or allowed for;

(d) the estate assets are capable of being distributed to the beneficiaries;

(e) a grant of probate has been obtained; and

(f) 6 months has elapsed from the date of the grant of probate.

A claim can be made against the Will within 6 months from the date of the grant of probate.  If such a claim is made, the estate will be fully administered once this claim has settled, or has been determined by the Supreme Court of Victoria.

There is no formal test for determining when an estate is fully administered. It is a question of fact determined by the executors.

It is not necessary for the executors to have transferred assets to all beneficiaries, or any beneficiary, for the estate to be fully administered. If there is no reason why the assets cannot be transferred then it can be assumed that the administration is complete even if the assets have not been transferred.

It is important that executors take due care in determining when an estate is fully administered.  It is important the appropriate party (the estate or beneficiary) bears the appropriate tax burden.  The ATO will look to, and hold, the executor responsible for ensuring that this is the case.

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