Executor Responsibilities: Sale or Transfer of Assets

A key decision for executors in administering an estate is whether the assets of the deceased are to be sold or transferred to a beneficiary. This article looks at the issues to be considered in making that decision.

Transfer of assets to a beneficiary is called an ‘appropriation’ in legal terms.

Specific Gifts

Where an asset is specifically gifted by the Will (eg. ‘I give my shares to John’) then it will generally be the case that the asset will be transferred to the beneficiary and not sold. This scenario is not contentious.

Assets Not Specifically Gifted

The more difficult scenario is when the Will is silent as to who receives the particular asset and it is instead part of the residue to be divided between a number of beneficiaries. In considering if assets that are part of residue should be sold or transferred the executors should consider:

  1. Does the estate have sufficient funds to meet its debts?
  2. Do they have the power to appropriate the asset?
  3. What will be the value attributed to the asset?
  4. What will be the tax implications?
  5. Is the appropriation in the interests of the beneficiaries as a whole, or will it favour one beneficiary over another? And,
  6. Should they obtain consent from all interested parties?

Can debts be funded?

It seems an obvious point, but it can be difficult when beneficiaries are desperate to keep an asset but the estate needs cash to meet its liabilities. Any arrangement for a beneficiary to fund liabilities on behalf of an estate, so that an asset can be retained, can have stamp duty or other cost implications that need to be considered.

Is there a power of appropriation?

The starting point for this question is to look at the powers contained in the Will. A properly drafted Will generally contains appropriation powers for the executors and may specify conditions as to how the power is to be utilised.

In default of any powers in the Will, then Section 46 of the Administration and Probate Act 1958 (Vic) should be considered which contains basic appropriation powers. This section requires consent of the intended recipient (except in limited circumstances) and provides that the executor may rely on a value determined by a duly qualified valuer.

It should be noted that if the executor is also a beneficiary of the estate, then an appropriation power will generally not operate to permit the executor to transfer assets to themselves without consent of interested beneficiaries, given they are subject to further obligations regarding conflict of interest and a prohibition against self-dealing.

What is the value to be attributed?

Again, the terms of the Will should be considered to determine if it provides a mechanism to value appropriated assets. In lieu of any guidance in the Will, then:

  • the item may have a reasonably fixed, uncontentious value, for example the price of listed shares;
  • the value may be determined by consent of all interested beneficiaries; or
  • the value may be determined by a valuation from one or more duly qualified valuers.

Often, for assets with uncertain value, a formal valuation is the starting point but the executor may wish to put the valuation to the interested beneficiaries for approval or objection prior to the appropriation occurring.

What will be the tax implications?

An appropriation can be beneficial for an estate in saving capital gains tax (CGT) or other sale costs that may be incurred if the asset was sold by the estate. There must be careful consideration of the terms of the Will and the timing of the event to assess who will bear any CGT in relation to the sale or appropriation of an asset.

Further, care needs to be taken in transfers to foreign residents and other tax advantaged entities, as it may be the case that this will trigger CGT, notwithstanding that the estate has not realised the asset.

A beneficiary who receives the transfer of an asset should also consider that:

  • they may inherit the deceased’s CGT cost base, meaning that there could be a historical tax bill payable by them if they sell the asset and a simple valuation of the asset will not generally take this into account;
  • where multiple beneficiaries each receive an appropriation of similar assets (eg. a share portfolio transferred between multiple beneficiaries), then the tax outcome for each of them may differ depending on their own tax bracket and income; and
  • stamp duty may be payable for real estate, to the extent that it is beyond the value of the beneficiary’s share of the estate.

Is the appropriation in the best interests of the beneficiaries?

The executor’s obligation is to act impartially for the benefit of all beneficiaries. Generally, this issue will be satisfied by ensuring that a proper value is attributed to the relevant asset. However, there might be issues if multiple beneficiaries are interested in receiving an asset or there are other reasons why a sale will result in a better outcome for the estate.

Should beneficiary consent be obtained?

Subject to the terms of the Will, this is not always required. However, even if there are powers of appropriation that do not require consent, there is always some risk if an executor proceeds to fix a value and transfer an asset against the wishes of other interested beneficiaries. So, care should be taken if considering an appropriation without consent.

If the transfer is to the executor as a beneficiary, then it is even more imperative that consent is obtained.

Key Takeaways

There is generally some flexibility in administering an estate as to whether assets are sold or transferred, but care needs to be taken in assessing the options.

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