Legal Tip 297: Nominating Overseas Executors under the will

Discussion in 'Wills & Estate Planning' started by Terry_w, 24th Jul, 2020.

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  1. Terry_w

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

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    It is best to avoid having a non-resident executor of your will. There are 2 main reasons which are

    a) Taxation, and

    b) Practicality

    A deceased estate is basically a trust and where a trust is controlled by a non-resident trustee the trust will be a foreign controlled trust. This will have adverse tax consequences such as loss of the 50% CGT discount on the sale of the estate assets, potential loss of the main residence exemption, withholding tax on any capital gains etc. To avoid being a non-resident the estate would need at least one resident executor.


    Also it is impractical for a non-resident to be executor because they will need to open bank accounts, transfer title to property and shares etc. This will be difficult to do outside of the country.


    And keep in mind that when you do your will you might have no connections to non-residents in the family, but when you die your children could all be living and working overseas and be non-residents for tax purposes. So make sure you have nominated a few back up executors so the any non-resident ones could decline to act in the role to avoid the above problems.
     
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Not to mention the legal issues. A resident beneficiary may seek action to have the foreign executor terminated if a non-resident was appointed as sole executor as the control of assets could be at risk such that a bneficicary may lose some or all entitlement to the share of the estate. A costly Supreme Court matter.

    Solution ? A trustee company may be wise.
     
  3. Trainee

    Trainee Well-Known Member

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    Does non resident executor follow the same definition as non tax residency?
     
  4. Terry_w

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

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    Yes I should have specified, residency for tax purposes here.
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    For tax purposes executor is not defined. LPR is. Trust non-residency (tax) rules prevail. A trustee that is no-resident meansd the trust is a non-resident trust. CGT issues etc

    Perhaps a land tax issue too?
     
  6. Tony3008

    Tony3008 Well-Known Member

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    I've got no family here, so my solicitor is my executor: I suspect his bill could be $50K, not that I'll be here to worry about it. Assuming he decides to sell off all my IPs immediately with tenants in place, every last rent payment and outgoing during the selling period will need to be accounted for, another six minutes billed for each one. But for the reasons Terry cited, appointing a family member is not an option, and I've heard rather mixed reports about State Trustees.
     
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  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    State trustee is one (state) option. There are commercial trustee services like Perpetual, AET etc
    Register of certificates of transfer for licensed trustee companies | ASIC - Australian Securities and Investments Commission

    Where specific instructions are to be given its less problematic than where they need to use discretion. They can take a very strict approach to avoid commerical and litigation risk. eg They likely would sell and liquidate all things. And distribute cash. They tend to do that rather than any asset distributions. And will seamlessly address taxes and debt discharge etc. They have published scales of fees which are tiered with a minimum of around $20K . Generally very concessional fees apply for a former home. But they also have fees for selling a property that can rival a real estate agent.

    A good paper on the issues and the fee disclosure problem
    https://www.lawsociety.com.au/sites/default/files/2018-10/files.pdf