Does your intended executor or beneficiary live overseas?

If your intended executor or beneficiary is living overseas (or may in the future), there are additional considerations that need to be taken into account in your estate plan.

One of the main considerations is tax (or more to the point – avoiding unnecessary and inadvertent tax). Tax largely depends on who controls or receives the asset.

If your intended executor is not an Australian resident for tax purposes, then your estate will be treated as a non-resident trust, which may adversely impact the intended beneficiaries’ entitlements. If any intended beneficiary is non-resident, this may also impact on the entitlements of the other Australian-resident beneficiaries, depending on what assets they receive.

Tax implications for non-resident trusts/estates and non-resident beneficiaries in Australia can include the following:

Income tax

Taxed as a non-resident. No access to the tax-free threshold available to resident estates or the ability to obtain franking credit refunds.

The implications vary if the assets include the following:

Real Estate

  • Additional surcharge rates of land tax will be charged.
  • If executor / trustee is non-resident a CGT clearance certificate may not be available and will result in the purchaser withholding 12.5% sale proceeds (relevant to property over $750,000).
  • 50% CGT discount not available to foreign residents/trustees.
  • If non-resident beneficiary wishes to receive real estate as part of their entitlement or it is directed to them as a specific gift (personally or as trustee of a trust established in a Will), an application to the Foreign Investment Review Board may be required, which is expensive and there is no guarantee of approval.

Shares in public or private companies, units in a managed fund or interests in a business

CGT Event K3 applies as soon as the asset passes to the beneficiary (personally or as trustee of a trust established in a Will) such that any gain or loss is included in the deceased’s final tax return as a disposal at market value, taken to have occurred immediately prior to death. This may result in a liability payable by the Estate (i.e. out of the beneficiaries’ residual entitlements).

Interests in an existing trust (eg. discretionary / family trust)

If control passes to a non-resident:

  • the trust will more likely be governed by the tax laws of where the controller is based; and
  • it can trigger other tax implications in converting the trust to a non-resident entity.

There may also be additional implications in the jurisdiction where the beneficiary or executor/trustee is a resident for tax purposes.

Beneficiaries of course can change their residence so it is also important for a Will to consider the “what if” and appropriately address how tax might be paid or give options to keep the control within Australia.

How we can help

The implications of non-resident executors and beneficiaries can be complex, but with careful planning, it is possible to navigate these challenges effectively and in line with your overall objectives.

Contact us

Please contact us for more detailed and tailored help.

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