A cautionary tale about executor appointments

Many individuals migrate to Australia from overseas and decide to call Australia home. It’s often the case that they leave loved ones and close friends behind but continue to have strong relationships with them, even while living in different countries and thousands of kilometres away.

It can be difficult when it comes to completing an estate plan to decide who should take on the important role of acting as the executor and trustee of the estate. Some clients prefer to have family and friends act in these important roles.  But what does that mean for the estate if those family and friends are living overseas and are non-residents of Australia?

CONSIDER THE CASE OF JANE

Jane moved to Australia from the UK in 2002. She met her husband Mark in Australia and they were married. Jane and Mark have three children aged ten, eight and five. Jane and Mark are now divorced. Jane is an Australian resident and has acquired assets in Australia including her home where she resides, a share portfolio, cash and superannuation.

In completing her estate plan, she intends to make a Will leaving her estate to her children at an age she deems appropriate, and she would like to appoint her brother Rohan and her sister Heather as the executors of her estate. Rohan and Heather both live in the UK.

But Jane’s children will live with their father Mark in Australia if Jane dies while they are minors.

It’s difficult enough acting as an executor of an estate when you are locally based, but there are additional burdens and practical difficulties to overcome when based on the other side of the world.
 
Rohan and Heather may not have the time and financial resources to be able to spend a long period of time in Australia to administer the estate. There is also the potential for a Court in Australia to not grant probate (the document required to enable the executors to administer the estate – see previous page for more details on the process of probate) to individuals who are foreign residents.

ASIDE FROM THE PRACTICAL DIFFICULTIES, THERE IS ALSO THE TAX STING!

In this case, if Rohan and Heather act as the executors of Jane’s estate on her death, her estate becomes subjected to taxes which it wouldn’t ordinarily be exposed to if an Australian resident had been appointed executor.
  
These taxes include:

• Foreign resident capital gains withholding on property sales
• Loss of the 50% capital gains tax discount
• Exposure to higher rates of tax, and
• Loss of the tax-free threshold and the marginal individual tax rates which apply to deceased estates.

SO WHAT ARE THE OPTIONS?

Jane would do well to rethink her executor appointments – and even if the appointments remained, Rohan and Heather might consider their options should a time arise where they need to act on the appointment. This can include renouncing the executorship.
 
There are a number of options for ensuring you can secure what’s most precious to you without making it complicated for those you leave behind.

Talk to us on 1300 133 472.