Can an estate distribute capital losses?

Hi, I am an executor of a deceased estate, and director of a family trust, both in the same family, so the beneficiaries of both are mainly the same.

This year the trust made a substantial one-off capital gain, which must be distributed to beneficiaries.

However, the estate has been carrying forward a capital loss from a couple of years ago (you could call it an ABC "learning" experience). I know that normally capital losses are carried forward within the estate, for credit against future capital gains.

Question: is it possible to "pre-emptively" distribute the estate's capital loss, so that the beneficiaries - in their personal tax returns - can offset it against the gains distributed from the trust, this year?

Corollary if the losses can't be distributed: The estate will be wrapped up in the next year or two. The unrealised capital gains are much less than the carried-forward capital losses, so even at the final reckoning there will be a net capital loss. Is it possible then to distribute the capital loss to beneficiaries, or does it just get written off?

 

You should seek specialised tax advice on this.

There are 2 aspects. Capital loss of the deceased and a capital loss of the estate generated after the death. Losses cannot be passed from the deceased to the estate. Any losses are lost at death.

Capital losses cannot be distributed either.

If there is a legitimate capital loss in the estate then it may be possible for the discretionary trust to distribute to the estate to offset this loss. But this will depend on many things.

 

Thanks Terry,

We do have professional advice, but I thought the question of distributing losses so left-field I wanted to sound it out before asking what might be a really dumb question.

I hadn't thought of the trust distributing to the estate. The trust's eligible beneficiaries are the usual: family, children, spouses, grandchildren, charities, certain companies. I think deceased estates are outside the legitimate sphere.

From what you've said, I get the impression the capital losses arising within the estate which remain unabsorbed at wind-up are lost.

 

You will have to read the trust deed carefully and also consider any possible strategies of utilising the losses before they are lost when the estate is wound up. Tricky area.