Taxes and costs
Income tax
An estate is liable to pay income tax on the deceased person’s income up to the date of death as if the deceased was still alive. If the estate continues to earn income after the date of death, the estate or the beneficiaries are liable for income tax on that income.
Capital gains tax could be incurred if the estate or a beneficiary sells an estate asset and there is a capital profit on the sale. The law here is extremely complex and advice should be taken from an accountant or lawyer as to liability in any particular case before any sale or transfer of an estate entitlement occurs, particularly if a life interest in an asset is dealt with.
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The charges for solicitors proving the will sometimes depend on the gross value of the estate. Additional charges will be made where a solicitor also acts as an executor or where conveyancing or other work is involved (e.g. where a joint tenancy is converted to a single tenancy). Solicitors have to provide an estimate of their likely charges before commencing any work.
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State Trustees charge in accordance with section 13 of the State Trustees (State Owned Company) Act 1994 (Vic). The scale of charges is listed on their website (www.statetrustees.com.au).
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For administering an estate, a private trustee company must charge in accordance with the prescribed scale of charges in section 601TAA of the Corporations Act 2001 (Cth). The State Trustees and other trustee companies will give particulars of their exact charges upon request.
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A person appointed executor/trustee or granted letters of administration is entitled to apply to the Supreme Court of Victoria for a commission or percentage not exceeding five per cent of the deceased’s gross assets (A&P Act s 65). The usual rate of capital commission that is allowed by the court is between one to three per cent of the gross assets of the estate, depending on the size of the estate and the amount of time and trouble the executor incurs in winding up the estate. An executor may also be granted commission on income of an estate during the time the estate is administered by the executor.
It is unusual for the full amount of commission of five per cent to be granted unless the estate is very complex, the estate is tiny, or the circumstances are very unusual. The commission will be reduced or refused if the court is satisfied that the executor, administrator or trustee was guilty of unreasonable delay, misconduct or incompetence in relation to carrying out their duties to the estate.
It is possible to avoid an application to the court if:
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all beneficiaries are legally capable and agree (after giving informed consent) on a rate (under five per cent) with the executor; or
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the rate is specifically set out in the will.
The A&P Act gives the Supreme Court of Victoria the power to supervise and reduce the executor’s commission, and requires the early disclosure of the rate of commission that the executor will charge (A&P Act ss 65A–65D).
Contacts
Australian Taxation Office
www.ato.gov.au
Probate Office
www.supremecourt.vic.gov.au/wills-and-probate
State Trustees
www.statetrustees.com.au
Taxes and costs
Chapter: 9.4: Estates
Contributor: Justin Rizzi, Barrister
Current as of: 1 September 2024
Law Handbook Page: 820
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