Donations in a will

Discussion in 'Legal Issues' started by [email protected], 24th Jan, 2020.

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  1. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Its not uncommon for a deceased estate to leave a charitable donation of money or property in a will

    Is it deductible to the decease estate ?
    Maybe. Maybe not

    Does the deceased estate after death have taxable income greater than the donation ? If not, a gift may be limited in the amount that is deductible since a gift cant create a tax loss.

    Then there is the chicken or egg dilemma. A executor is generally required to discharge all liabilities of the deceased prior to distribution of the estate to beneficiaries. So the executor may prepare and lodge a final tax return and seek refund of franking credits etc. But a beneficiary such as The Red Cross may not yet have been paid. So no gift deduction can be claimed.

    One strategy is for the deceased to leave a statement of wishes in their will for a named beneficiary to make a gift toa nominated charity. In this case the named person may then access a deduction hwoever statements of wishes can be ignored.

    Further is a gift like this even deductible ? No. The charity is a beneficiary and the payment isnt truly a gift. It is a deceased estate distribution. This also applies to value in property given to a charity. However the charity wont be assessed as it is tax exempt.

    One issue that differentiates property gifts and money. And its important. The manner of construction of a will for non-cash charitable donations on death should always be given legal advice to avoid a CGT problem for the deceased at the time of death. A poorly constructed will can leave a tax debt to the family and a nice property to a charity.

    Normally a capital gain or loss is disregarded when a CGT asset passes from the deceased to a beneficiary or legal personal representative.

    However, a capital gain or loss is not disregarded if a post-CGT asset passes from the deceased to a tax-advantaged entity (ie a charity !) or foreign resident.

    In these cases, a CGT event is taken to have happened to the asset just before the person died. The CGT event will result in a:

    • capital gain if the market value of the asset on the day the person died was more than the cost base of the asset
    • capital loss if the market value was less than the asset's reduced cost base.
    These capital gains and losses should be taken into account in the deceased person’s ‘date of death return’. This is the tax return for the period from the start of the income year to the date of the person’s death.

    Any capital gain or loss from a testamentary gift of property can be disregarded if the gift is made to a deductible gift recipient and the gift would have been income tax deductible if it had not been a testamentary gift.
    Terry this could be a issue for your Tips. There may be a few (assuming its not already there)
     
    Ted Varrick likes this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    This one covers that I think

    Tax Tip 155: Tax Deductions of Donations to Charities on Death Tax Tip 155: Tax Deductions of Donations to Charities on Death

    I have a client wanting to donate millions on his death so I told him he could get tax deductions for his family as well as make the same gifts. But couldn't convince him

    Another strategy is to leave everything to a testamentary discretionary trust with the will worded so it the trust will make the donation, that way the trust gets the deduction and this can offset other income of the trust.

    There are so many strategies relating to death.
     
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  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Go Geofrey Dahmer / Philip Nitchke ;)

    I have a death issue which relates to ....smsfs.

    A SMSF can provide death benefits right ?
    So a SMSF can own a prepaid funeral plan for a member. Yet its a rare asset held in a fund as its often not considered. It need to be either a segregated member asset OR allocated as non-deductible member outgoing (rather than a shared fund cost).

    For persons who are bordering on the assets test a prepaid funeral or two (one each in a couple) can help discharge assets.