It is not something people like to talk about, but in the unfortunate event a loved one passes away, would you know what to do? The initial sadness and shock will initially overwhelm you, but we have written a guide to help you navigate the process of sorting out the affairs of the deceased all the way to the final distribution of the estate.
By Kym Nitschke
Wills and Estates
The first step is to locate the original copy of their Will. A Will is the document drawn up when the person is still alive that sets out their wishes for the distribution of their assets after their death and also whether they wish to be cremated or buried. Some of the places you could look are:
-Filing cabinets at their home
-Lawyer or Accountant may have a copy
-Safety deposit box at the bank
Once you have located the Will you should identify who the Executors are and notify them. What is an Executor? They are responsible for carrying out the wishes of the Will, their job is very serious and with it comes a lot of responsibility. Jobs they are responsible for include, notifying the beneficiaries the person has deceased, valuing the estate, ensuring income tax returns are complete and up to date, paying all the debts, paying the professional fees, handling the disposal of assets, dividing up the estate, establishing any trusts if required and generally looking after the estate. In the case that a lawyer is the executor and they wish to charge for their time, a separate document needs to be drawn up with the Will saying they are happy for the fees to come out of the estate, which the deceased would hopefully have signed.
It would be a good idea to take the Will to a JP and get 10 certified copies as you will need lots of copies along the way. You will need to read the Will and work out if there will be any contentious issues, such as; are the funds distributed inequitably, if not often this leads to challenges of the Will.
During this time, you will need to organise the funeral. How do I pay for the funeral you may ask? The bank will freeze the bank accounts however they generally will release funds to cover the funeral. Another thing worth checking is their Life Insurance policy, some policies will pay out a set amount early for funeral expenses.
A death certificate will be sent to the funeral director by the office of Births, Death and Marriages. The funeral director will then send it to the executor. What is a Death Certificate? It is a government generated document similar to a birth certificate, it specifies the deceased’s name, address, age, place of birth, occupation, Australian residency status, marital status, spouse details, children, parents, date of death, cause of death and burial details.
Once you have received the Death Certificate you can start applying for Probate. Probate is the process of proving and registering the Will of the deceased person in the Supreme Court, it is a legal document that certifies that the Will is valid and that the estate can be administered once granted. There is a list of all their assets and liabilities lodged through the Probate Office and a number of forms that need to be completed, they can be found at: http://www.courts.sa.gov.au/RepresentYourself/ProbateRegistry/Pages/Application-for-grants.aspx
Remember when compiling the ‘affidavit of assets and liabilities’ for the Grant of Probate, they include:
Interest accrued on Term Deposits is included as an Asset, it is not enough just to include the balance
-Principal place of residence – generally you will use the value on the Council Rates notice
** It is important to note that there is a stamp duty exemption on the transfer of assets under the Will
-All properties listed on the affidavit need to be listed by the Certificate of Title details and property address
-Life Insurance Policies and amount due
-Shares in listed companies – valued at Market Value as evidenced by the ASX or Share Broker Report at the date of death
** Often people forget about shares that they have and after they die receive a dividend into their bank account months or years down the track, we have seen an instance of this were the Executor instructs the share broker to sell them down and they can’t do this unless each of the share parcels are individually listed on the Statement of Asset and Liabilities. Another thing that can happen is the dividends are paid but the bank account has been closed by the deceased and the dividends end up being paid into the Government’s Unclaimed Monies account. It’s a good idea to check the Unclaimed Monies website before finalising the list of Assets and Liabilities.
-Cars, Motor Bikes and Collectables – you need to list the registration number, insurance and appraised value. Contact the insurance company to find out this amount if applicable and then show that amount as the value.
-Interstate assets must be listed by state
-Eg. Assets within SA
-Eg. Assets outside SA ie. Real Estate NSW
-For rural properties list improvements and specify what they are – get the local real estate or stock agent to give you a walk-in, walk out valuation
It is important to list assets that the deceased owned that had a significant decline in value as well. For example we have seen a case where a client bought shares in the Philippine Department of Finance and we still listed the shares in the list of assets at the purported market value which we found in the deceased’s filing cabinet. The amount was never recovered but in the event that it is, then the Estate can lay claim to it.
Total Assets $$
-Bank loan – eg. Bank, Branch, BSB, Account Number, Balance, accrued interest, Certificate of Title, plus show the details of any mortgages held over the property
-Include personal debts owed to others, including loans from family members
-Total Liabilities $$
Summary of Assets and Liabilities
Total Assets $$
Total Liabilities $$
Net Estate Disclosed $$
This is not an exhaustive list but it should give you an idea of the information that is required.
Challenges of the Will are becoming common place, especially with split families and unequal distributions. Uneven distributions to beneficiaries is sometimes done by the deceased to even up net wealth amongst siblings or it may be done as a payback as a result of a disagreement between the deceased and an estranged child. It is a good idea to do a forensic audit of the bank account between the date of drafting the Will and the date of death. If the deceased makes a financial payment to another beneficiary in this time period then there is a presumption that this needs to be adjusted for the final distribution. This is known as the “Principal of Ademption”.
Super and death benefits can bypass the deceased estate because if there was a current binding nomination in place for the deceased, the funds can go directly to a beneficiary. These funds never touch the estate, they go directly into the beneficiaries nominated bank account. This is designed to be a really quick and easy process which takes immediate financial pressure off the receiving family members when the death takes place.
If a Will is challenged the costs of resolving the dispute are normally paid from the estate, therefore there really is no disincentive for a child or beneficiary to challenge the Will. Usually lawyers who take on disputes over Wills are happy to accrue their fees until the matter is settled and that is provided that there are funds in the estate to cover their fees. Challenging a Will is a very expensive exercise because it has to be done in the Supreme Court. This was determined by the legal system due to the complexity of work of this nature and they thought it should be handled by one of the highest courts in the land. It is also important to remember you will need both a lawyer and a barrister (in SA there is a fused bar where lawyers are also barristers), preferably a SC barrister. You will require both as a lawyer drafts up the paperwork and the barrister stands up in court and makes representations to the Judge on your behalf. It is important to bear in mind that legal professionals often amass legal fees which seem to take up a fair chunk of any distribution (should the challenge be successful) and also before you embark on a legal challenge that any court case will have a devastating impact on ongoing family relationships.
Once any disputes are resolved, the assets can start to be sold. Superfunds can liquidate assets and convert them into cash. The tax can be paid and the fund can them be wound up. Any fees incurred by the estate will need to be paid such as Legal and Accounting fees.
You will need to apply for a Tax File Number for the estate, this can be done via the ABR website. You will then need to lodge Tax Returns. The tax office allows 3 years of tax Returns to be lodged once someone has died and they are treated as if they were still alive (please note if the deceased died in say May 2017, then the 2016/2017 Tax Return would count as the first year). The date of death tax return needs to be marked as final, and the return needs to show income earned and expenses from date of death to the end of financial year. If the deceased is still earning dividends, interest on bank accounts or rental income on investment properties these will need to be shown in the deceased’s Tax Return.
**Please note if you have a testamentary trust you will need to get a Tax File Number and open a bank account for it, then money can be paid into it and the assets transferred in. They are really useful when there are for example grandkids under the age of 18, whereby any income earned by the testamentary trust can be distributed to them as if they were 18 years or older. Thereby they receive the tax-free threshold and pay tax at the standard rates. This is a tremendous tax planning tool. It can also be used where beneficiaries have mental health issues or drug related issues as well. It can be structured in such a way that funds can be disbursed over a greater length of time and managed by someone professional.
Please note this is only a general overview of the process involved. It should not be taken as advice and you should consult a legal professional and your tax adviser before making any decisions.