Why you should make a will and what it should cover

Why you should make a will and it should cover

As affluent baby boomers shift into retirement, Australia is on the brink of the nation’s biggest ever transfer of wealth between generations. Yet estate or inheritance planning is rarely discussed by families. We take a look at why making a will is important and what it should typically cover.

Talking openly about how you want your assets to be passed on can help avoid family disputes that take a toll both financially and emotionally. It provides a certain peace of mind for you – that your intentions will be met – and for your family and friends.

Certainly the stakes have never been higher, with growing house prices and healthy superannuation balances contributing to a considerable increase in the wealth of many older Australians in the past two decades.

Around $1.5 trillion was transferred in gifts or inheritances between 2002 and 2018. In 2018 alone, some $107 billion dollars was inherited while $14 billion was handed out in gifts.i

The importance of planning

With so much at stake, having an estate plan in place helps to protect the interests of those you care about and to fulfil your wishes. It takes careful thought and professional advice, but that is no excuse for putting the task aside for later. If something happens to you in the meantime, your assets may not be distributed as you would like and there could be tax implications for your beneficiaries.

An estate plan includes a Will and, in some cases, funeral arrangements and instructions for the care of children and animals. Without a Will, your assets will be distributed according to state inheritance laws which may not be what you intended.

A plan may also include instructions for a testamentary trust to hold assets that are then distributed in a tax-effective way to your beneficiaries. And don’t forget your ‘digital will’, a list of any online accounts and passwords that may be important.

Meanwhile, to protect your interests in case you are incapacitated in some way, an enduring power of attorney and a medical power of attorney nominate the people you would like to handle your affairs until you are better.

Complex families

Estate planning is even more important in the case of blended families or for those with complex family relationships, especially where the emotional issue of the family home is concerned.

Disputes often centre around who gets the house when there are children from a previous marriage, but your new spouse is living in the family home. You could allocate other assets to the children and leave the home to your spouse or require that the house be sold and the proceeds distributed to all. Alternatively, your Will could grant lifetime tenure in the home for your spouse with it passing to your children after your spouse dies. Having conversations early about your intentions, can help alleviate possible conflict.

If you are concerned about protecting the interests of a family member with mental health or addiction issues, a testamentary trust can help to look after your assets and distribute funds in a controlled way. A testamentary trust is also often used to provide for young children, holding the assets until they reach adulthood.

Dividing it up

When it comes to deciding how best to allocate assets among children, some prefer to hand out equal shares no matter their individual financial circumstances, while others prefer to give extra to one who may be struggling. Given that Wills are frequently challenged by family members or others who believe they are owed a share or an even bigger share, it’s wise to make your intentions clear in your Will including reasons and documentation.

While people who receive inheritances are usually well into middle age - on average 50-years-oldii - and perhaps comfortably well-off, you could choose to bypass the next generation. Instead, you might consider leaving your estate to grandchildren, to help set them up with a deposit for a home or covering school fees.

Another option is to begin distributing your estate while you are alive and can share the enjoyment of the benefits the extra financial help might bring.

What’s not covered?

It is important to note that some assets are not covered by your Will. These include assets jointly held with someone else (such as a bank account or a house), super benefits and life insurance.

In the case of jointly held assets, ownership generally passes to the surviving partner and life insurance is paid to the beneficiary named in the policy. For super, it’s vital to complete a binding death benefit nomination to ensure the funds are paid to the person you choose.

With so much to consider, expert advice is critical when preparing an estate plan, so call us to begin the discussion.

i https://www.pc.gov.au/research/completed/wealth-transfers

ii Wealth Transfers and their Economic Effects - Commission Research Paper - Productivity Commission (pc.gov.au)

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Making a gift of real estate to family members. Warning about tax implications.

What Do You Need to Know Before Gifting Real Estate?

Making a gift of real estate to family members. Warning about tax implications.

What Do You Need to Know Before Gifting Real Estate?

Are you considering gifting real estate property to a family member? Transferring a house or other property to family members can have various benefits, but there are some nasty pitfalls you’ll want to avoid.

Giving property to your heirs while you’re still alive may sidestep the probate process. Property transfer can also be part of an asset protection strategy.

But giving property to someone else can have financial and tax implications. Here’s what you need to know before transferring real estate ownership.

Can You Give Real Estate as a Gift?

Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.

In some cases, property gifting takes place as a sale. For instance, if you want to give a family member a house but need to cover costs, they can buy the property at a discounted price.

Who Should Be on Title for Property Gifted to Family Members?

When buying a property, you receive a Certificate of Title. This document outlines your rights and responsibilities as the property owner. When you sell or gift the property, the government will record the change on the property title. This official record contains all property details, including:

  • Ownership
  • Mortgages
  • Easements
  • Covenants
  • Caveats

After the property title transfer, your family member will be the owner of the property.

Is Gifted Real Estate Taxable?

Australia doesn’t have a federal gift tax for:

  • Cash gifts
  • Charitable gift donations
  • Immovable property

However, real estate may be a taxable gift. Depending on the type, location, and value of the property, the new owner may be liable to pay:

  • Stamp duty
  • Land tax
  • Absentee owner surcharge
  • Vacant residential tax

The new owner’s tax obligations depend on the relevant state’s tax laws.

What are the Tax Implications of Gifting Property?

Before you transfer ownership of a property, understanding the tax consequences is critical.

Capital Gains Tax

From a tax perspective, capital gains can impact your financial situation. You need to pay capital gains tax (CGT) as part of your income tax assessment when disposing of a property. In other words, the proceeds from the sale form part of your taxable income.
In a sale, the capital gain is the property’s purchase price minus the selling price. If the property is a gift, the capital gain is the property’s fair market value minus the purchasing price.
When gifting a house, the Australian Taxation Office (ATO) assesses the capital gains tax bill using the market value on the transfer day. A professional valuer can determine the property value using objective and verified data.
In some cases, property owners can avoid capital gains tax. You can eliminate or reduce CGT if you are transferring:

  • Your primary residence
  • Investment property
  • Small business premises
  • Property you purchased before September 20, 1985

A rental property can be your place of residence. Under the temporary absence rule, the property remains your place of residence if:

  • You didn’t vacate the house for longer than six years and
  • You lived in the house for at least twelve months before moving out

Stamp Duty

Australian states levy stamp duty on a transfer, even if the property is a gift. Contrary to popular belief, stamp duty is not a one-off payment. Under tax law, buyers need to pay stamp duty on all property deed transfers.
Stamp duty falls under state tax. For example, in New South Wales and Queensland, you can transfer an interest in property to your spouse without paying stamp duty. You also don’t need to pay duty if, after the transfer:

  • You and your spouse own the entire property as joint tenants
  • The property is your permanent place of residence

Before beginning the transfer process, it's best to seek financial advice to learn more about the laws in your state.

Other Considerations When Transferring Property to Someone Else

Pension Payments

The consequences of gifting a house may extend beyond taxes. Before transferring a property to a child, elderly parents need to consider the impact of the transfer on their pension payments.
Centrelink assesses the income from a transfer using the property’s value and not the actual selling price.
For example, suppose you give a house with a value of $250,000 to your children. Even if you sell the property for $100, Centrelink will assess the proceeds from the sale as $250,000. In this case, you may lose your pension payments.

Home Loans

If the property you transfer has a mortgage over it, your relative has to take over the loan. Before commencing with the transfer, the lending institution holding the mortgage needs to approve the new owner.


In addition to taxes, various fees may apply to a property transfer. You may need to pay for an independent valuation that you will need when filing your taxes. You will also likely need to pay a solicitor to:

  • Provide you with legal advice
  • Draw up the necessary agreements and transfer documents
  • Transfer property titles

Before gifting a house to a relative, consider any additional costs carefully. You also need to ensure that the new owner can afford costs, such as the stamp duty.

Contact the Estate Planning Experts in Australia!

At House of Wealth Property Tax Experts, we can assist you in all matters relating to real estate taxes. We can provide you with professional advice and structure your taxable estate to lower your tax burden.
Are you planning on giving real estate to a relative as a gift? You may be eligible for an income tax deduction or federal estate tax exemption. Using our tax planning service, you can rest assured that you are not paying a cent in unnecessary tax.
Our other services include portfolio management, real estate tax accounting, and Centrelink advice. If you are looking to give real estate to a relative, contact us today to schedule a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Property Inheritance and Taxes

The passing away of someone you love is a tragic event but not taking into account the tax considerations on sale of any property you receive from an inheritance as part of that estate can cause further grief.

Main Residence

If the property was used as the main residence of the deceased then any capital gain or loss on a dwelling acquired by an individual as a beneficiary of deceased estate or by the trustee of a deceased estate will be fully exempt if

  1. the dwelling was the deceased’s main residence just before they died or it was the deceased’s pre-CGT property; and
  2. the dwelling was disposed of within two years of the deceased’s death, or it was, from the time of death until the disposal, the main residence of
  • the spouse of the deceased
  • an individual who had the right to occupy the dwelling under the will of the deceased ; or
  • a beneficiary

3. then need to consider a number of events with your adviser.

Careful planning needs to be undertaken to ensure that this event is planned for.

For all other property, other than your main residence or other dwelling e.g. an investment property, you will need to determine whether the property is a pre-CGT asset (purchased prior to 20 Sept 1985) or a post-CGT asset (purchased after 20 Sept 1985).

Pre CGT Assets of the Deceased

If the property you inherit was acquired by the deceased prior to 20 September 1985 you will be deemed to have acquired the property for its market value on the day the deceased died.  It will then be a post CGT asset for you.  You will need to hold the property for more than 12 months from the date the deceased died in order to obtain the 50% general CGT discount.

Remember though the special rules in Section 118-195 ITAA 1997.  If the property was acquired by the deceased prior to Sept 1985 and you dispose of that property within 2 years of the deceased date of death there will be no CGT on the sale of that property.  Many accountants do not read the table in Section 118-195 properly and think it is to be read like most tables.  However s118-195 makes it very clear only one condition in Column 3 and one condition in Column 2 is required.  It is a matrix not a table.  We have seen this to be a common mistake made by many accountants.

Post CGT Assets of the Deceased

If the property you inherit, other than your main residence (discussed above) or other dwelling e.g. an investment property which are subject to special rules (worth discussing with your adviser), was acquired by the deceased on or after 20 September 1985 you will be deemed to have acquired the property for the cost base and the reduced cost base that applied to the deceased.  You will need to hold the property for more than 12 months from the date the deceased acquired the property to obtain the 50% general CGT discount.

They say that two things in life are certain.  Death and taxes.  Unfortunately the two are often intertwined.  House of Wealth are able to assist with the preparation of a deceased clients tax return.