Tax Tip 347 Changing Benefits under a Will and Stamp Duty in NSW

There may be limited opportunities to save stamp duty in NSW where the gifts under a will are ‘adjusted’.


Example

Homer has 3 properties worth $1mil each.

Conveniently he also has 3 kids.

Homer’s will says he leaves everything to all children equally as tenants in common.


This would mean each kid will end up owning 33% of each property. Not ideal for the kids.


So they start talking, as the coffin lowers into the ground, about taking one property each.


Will they have to pay stamp duty?

Yes, if they don’t take legal advice this would be a transfer of 2/3 of each property which would mean $666,666 worth of each property would be subject to duty.


A way around it?

Under s63 Duties act they could potentially avoid duty if the LPR (Legal Personal Representative) appropriates property towards satisfaction of their entitlements. The LPR is the executor or administrator of the estate and the will may contain a clause allowing for them to ‘appropriate’ property – that is take from one to satisfy another. If the will is silent on this the LPR may be able to use powers under s46 of the Trustee Act 1925 (NSW) to do this.


In the above example the LPR can transfer one property to each of the children and the stamp duty may be $50 due to s63(1)(iii).


Legislation:

S 63 Duties Act NSW

DUTIES ACT 1997 - SECT 63 Deceased estates


s 46 Trustee Act NSW

TRUSTEE ACT 1925 - SECT 46 Appropriation


Other states have similar legislation (but different so seek legal advice)

 

I would be asking Police to investigate Homers death.

 

Equal shares as tenants in common is a very onerous structure for separate adults.

Couldnt this be avoided if homer allowed the executor to distribute by value? Ie each beneficiary just gets one full property each, with other assets adjusted by value?

 

If there was an adjustment clause in the will it would have been easier, but same outcome.

 

But the will can empower the executor to distribute one property 100% each to each child?

just want to see if this is one of those prevention is better than looking for a cure type scenarios.

 

Homer's did!

 

Legal advice specific to each case when drafting a will (and its regular review) is important and equalisation clauses are quite important. Imagine if Homer did have three properties. Each worth something similiar. Barts has a loan for 80% of its value. Thats not good. Or if they are not equivalent value it may create a range of concerns. Perhaps there is cash to equalise things ? Perhaps not.

I also see this problem another way. Think of a deceased estate with $1m of cash and $2m of shares. If Homers will says "I leave all my cash to Lisa and 50% value of shares to Bart & maggie" its not going to be equal. Why ? The shares come with a accrued CGT liability and each parcel may be very different. Same with those three properties. Imagine if Bart got one owned since 1984. Lisa gets one owned since 1996 and Maggie gets the one owned since 2020. The associated CGT liabilities would be unbalanced and what seem a equal share is nothing like it. Equalisation clauses can smooth out deficiencies in a will where assets of the deacesed may change and the will isnt updated too.

 

And potentially helps with liabilities from cgt event K3.

does require some expertise on the part of the executor tho.