Common Myths Surrounding Inheritance

Individuals face making crucial decisions when it comes to the deceased’s finances, which can have lasting tax implications.

Here are three common inheritance myths.

The family home is CGT-free

Principal places of residence are usually free of capital gains tax (CGT), but a principal place of residence can be subject to CGT when a beneficiary inherits it. The way homes are treated depend on whether they were purchased before or after September 20, 1985. If a deceased’s house was purchased before September 1985 and is sold within two years of the date of the owner’s death, then it is CGT free. If the home is sold after this time, then it is subject to CGT. The only exception to this rule is if the inheriting beneficiary used the home as their principal place of residence, which would incur no CGT.

A Will cannot be changed

A person with the capacity can make as many changes as they want to their Will to create a document that fulfils their wishes. But once a person loses their capacity and their Will is not changed, things can become quite complicated. In cases like these, it is the responsibility of the executor of the Will to ensure the document is valid, binding and is the last official Will of the deceased. Even though it can cost money to make changes to a Will, it is certainly worthwhile in the long run to get it right.

Beneficiaries receive the cash equivalent of any gifts

Those who are set to receive an asset (e.g. the family home) that is sold before their parents pass away are not entitled to the cash equivalent if the parent’s Will has not been changed. It is quite common for a person to sell their home to enable them to move into aged care, but problems can arise when homeowners die and the proceeds of their house are divided according to the estate. Unfortunately, the general principle is that if a particular gift has been made to a beneficiary but the gifted asset is not owned at the time of death, then that gift fails.