Equalizing Will to account for CGT?

Been doing some reading on Testamentary Discretionary Trusts as set up by a will (thanks Terry for your posts!) and if I understand correctly assets that are transferred into a TDT from the estate aren't subject to CGT but their cost base is effectively taken across. Hence in the future if a CGT event occurs for an asset then there would be CGT tax payable.

This to me would mean that if an estate say had a $1.5m property which was used exclusively as a PPOR and $1.5m of shares (that had been acquired over an extended period of time) in it and there were two 50/50 beneficiaries in the will - then the shares would come with a potential CGT liability and the property would not. Hence it would not be an even split for one beneficiary to take the property and one to take the shares.

How are these situations typically handled? If allowing for CGT as a liability before the assets are split then there would need to be assumptions made about what rate the CGT is being paid at - which might differ per beneficiary. Especially so if one beneficiary was taking their inheritance in a TDT and they had low income family members to distribute to.

Regards,

Jason

 

Take into account that children are taxed as adults on s102AG income. Widens (and lengthens) the pool of ‘low income’ beneficiaries.

 

That is exactly right.

The way around it is to leave 50% of everything to 2 testamentary trusts with the executor given a power to adjust based on CGT and outside assets.
The 2 beneficiaries will get, at first instance, 50/50 of each asset, thru a TDT, but can rearrange it so that one takes more of the shares and one more of the main residence, factoring in tax. Super and discretionary trust assets could also be factored in, even though these don't form part of the estate.

I seen a client recently who owned their main residence with another family member who died, but he left the share of the property to someone else and the person he owned the property with he left another property. They had to try to rearrange the will so they swapped gifts and CGT and stamp duty would have been triggered because of the way the will was worded.

 

If the will is specific to gifts the executor has no choices

 

The beneficiares and non-beneficiaries even, can make a challenge, or put the executor on notice. A deed can then be entered into by the parties to vary the will. Tax law says this can be a way around triggering CGT - if genuine