Author: Bernie Hayward

• A Testamentary Trust is any trust created by a will.
• The term is also used to refer to a trust created with money that came from an estate.
• It is common in a will to make gifts to children. They might be your children or grandchildren. If these gifts are invested and earn interest, this interest will be income in the child’s name. Normally a child (under 18) is only allowed to receive $416 per annum unearned income before paying tax at the maximum rate. This rule was introduced a few years ago to stop high income earners splitting their income through family trusts into their children’s names. However, there is an exemption to this rule. If the trust income comes from assets left by an estate, then the normal tax rates and exemptions apply.
• this means that the first $6,000 is tax free and the progressive rates of tax apply to the balance. The savings can be substantial.
• you must have an estate of sufficient size to justify setting aside funds for infant beneficiaries and still provide for adult beneficiaries.
• the exemption can also apply to funds you have placed into a trust for children when the funds have been left to you from an estate. There are more restrictions on this type of trust and the funds must be put into the trust within 3 years of the death. Also limits on the amount of benefit apply.

• They are paid by selling your assets. This is the job of your executor.
• The executor has to determine what are your assets and what are your debts. He/she must sell your assets, pay your debts and distribute the balance according to your will.
• your home may have to be sold to pay your debts unless there are other assets available.
• As part of an application for probate, your executor is required by law to advertise that he is going to apply for probate or your estate and invite people to make claims in your estate. The solicitor would normally arrange this advertising. If you look in the legal pages of the Sydney Morning Herald you will see such ads.
• if your debts exceed your assets, they can’t be paid. Your next of kin are not responsible for your debts (unless they have guaranteed them somehow).
• your executor is personally liable for any income tax you owe.

• It depends on what assets are in the estate. If the deceased controlled a business which has therefore passed to the estate, then the estate needs to register for GST and put in returns etc. Legal fees of administering the estate will be liable for GST. If real estate is to be sold, the agent commission will be liable for GST. The matter will need to be looked at by your lawyer at the time.

• This is a tax on the increase in value of assets that are not exempt.
• The way it works is that half the increase in value from when an asset is bought or received to when the assets is sold or transferred is added to the sellers other income in the financial year of the sale/transfer.
• It is payable whether you receive funds for the transfer or not – so if you gift a liable asset without receiving anything, you still have to pay the tax.
• Principal place of residence is exempt from capital gains tax.
• Only applies to assets on which the ownership changed after 19 September 1985.
• Death doesn’t create a liability to pay the tax but is a change of ownership so that assets originally bought before 1985 now become liable for tax on any increases (from the date of death).
• if the asset was bought by the deceased after 1985, you inherit his/her liability (if any) although you don’t have to pay it until you sell or transfer the property.
• if the asset was the principal place of residence of the deceased, you have up to 2 years from the date of death to sell without having to account for any increase from the date of death to the date of sale. The sale has to be completed, not just contracts exchanged, within that time. You can pocket any increase in value in that time.
• if you sell after the 2 years, any increase in value from date of death to date of sale is liable for capital gains tax in the hands of the beneficiaries.
• you are allowed to deduct the costs of getting the asset into your name and the sale costs.

• Death duties were abolished in 1981 for any person dying after that date.
• Capital Gains Tax is considered by some to be a form of death duties.  I have given a short resume of this below.

• A “Grant of Probate” comes from the Supreme Court and is the official acknowledgement that on the available evidence:
  • the deceased is in fact deceased
  • a will is the last will of the deceased
  • the executor is authorised to collect assets from persons holding them on behalf of the deceased.
• Probate is granted by the Supreme Court (although you don’t have to go to court unless there is a dispute about the will)
• People paying assets of the deceased to the Executor named in the grant of probate are protected from future claims by other persons even if the probate is overturned by
• Probate can be revoked if the will is proven to be not the last or other defects found in the process (ie. the person is not dead).
• in that case the Executor may have to pay the money back to the estate (even if they have paid it out to other beneficiaries – the Executor would then have a right to take action to recover from such beneficiaries).

• Any person who is old enough to give evidence in court; .
• can’t be a beneficiary to the will or the spouse of a beneficiary (de facto spouse may be included in that category). If they do witness the will they can’t get their share although the rest of the will, will not be affected.
• The task of the witness is to see the person making the will (Testator) sign the will and to then sign themselves. They don’t have to know what is in the will. By signing they are effectively saying they were present and the Testator appeared to be signing of his own free will and appeared to understand that he was signing a will. The Testator can sign before the witness is present and then acknowledge his/her signature when the witness is present. The witness is entitled to ask questions of the Testator to be satisfied he understands.

• Any adult person can be the Executor (over 18 years).
• There is no limit on number but more than 2 might become unworkable. Common to appoint one with an alternate if the first can’t or won’t take on the task.
• must be a named or definite person
• The Supreme Court normally require the Executor resides within NSW or be able to give an address for service of documents in NSW.
• Usually you would want someone you can trust and who has some experience in dealing with assets. The duties may involve selling assets and making decisions as to the price and method of sale.
• A solicitor can be the executor either alone or with other executors. It is sometimes a good idea to appoint your solicitor with the other executors as a ‘referee’ in case of disputes.
• The NSW Trust & Guardian (formerly Public Trustee) or a private trustee company can be executor.
• a beneficiary can be the executor and it is common to appoint the person receiving the largest interest as executor.
• it is not a good idea to appoint a person who may have a conflict with the other beneficiaries.
• a person who is to receive a life interest should not be appointed as executor as the estate will continue until after they pass away.
• a person who may wish to purchase an asset from the estate may not be a good choice as he can’t buy from himself without a specific clause in the will or the consent of all the other beneficiaries (who would all have to be adults) or court approval.

• When someone dies, the Executor is the person who has responsibility to find out what their assets and liabilities are, pay all the debts and then distribute the balance in accordance with the will or the laws ofintestacy.

Executors other duties include:

• arranging the funeral
• lodging taxation returns and making sure all tax is paid (the Executor is personally responsible for any unpaid tax).
• take control of any business or farm and ensure that assets are not lost or stolen or perish.
• if necessary, sell assets to raise funds to either pay debts, taxes or distribute to beneficiaries.
• distributing the assets to beneficiaries (or the proceeds of sale of the assets).
• keep financial accounts of what has been done.

• You must be 18 to make a will.
• you can also make a will if you are married below that age. In NSW you have to be 18 to marry unless you have a court’s permission.
• a will made in contemplation of marriage would become valid when you married, even if you were under 18 when you made it.
• the Supreme Court can give permission to a minor to make a will.