Sometimes a person who is entitled to an inheritance decides they do not want it, or would prefer another family member to receive it, or would like to share the inheritance.
There are three common ways to achieve this:
1. “Disclaiming” an Inheritance
The person can “disclaim” their inheritance. If done properly, the law treats the beneficiary as though they predeceased the deceased and therefore were never entitled to the inheritance. The inheritance then passes to the next beneficiary in line under the terms of the will or the rules of intestacy (i.e. the rules that apply where there is no will).
This option is often the simplest but can have unintended consequences if the disclaiming beneficiary did not intend the gift to pass to the next beneficiary in line under the will or the rules of intestacy.
2. “Assigning” an Inheritance
An “assignment” occurs where a beneficiary receives the inheritance but then “assigns” (i.e. transfers) their entitlement to someone else. For example, a beneficiary may decide to transfer their share of an estate to a spouse or child for asset protection reasons. Because it is a transfer, it can in certain circumstances create tax, stamp duty and Centrelink issues.
3. Deed of Family Arrangement
A Deed of Family Arrangement is a formal agreement between the beneficiaries to change how an estate is to be divided. Families often use these deeds to:
- avoid disputes;
- settle family provision claims brought against the estate;
- redistribute assets more fairly or differently; or
- achieve practical outcomes not provided for in the will.
Are there Stamp Duty, Tax and Centrelink Consequences?
When property passes from an estate to a beneficiary under a will or the intestacy rules, transfer duty (i.e. stamp duty) is often exempt. However, if beneficiaries change who receives property through an “assignment” or “deed of family arrangement”, transfer duty may sometimes apply depending on the nature of the property.
In many cases, assets passing from a deceased estate to beneficiaries do not trigger immediate capital gains tax (CGT). However, “assigning” an inheritance can sometimes create CGT consequences. Some “deeds of family arrangement” may also affect tax outcomes.
People receiving Centrelink benefits should be particularly careful. If a beneficiary gives away or redirects an inheritance, Centrelink may treat this as a gift or deprived asset. This can affect pension or benefit entitlements, even if the person never actually receives the inheritance.
The takeaway is simple: Disclaiming, assigning or redistributing an inheritance may seem straightforward, but each option can have important legal, tax, stamp duty and Centrelink consequences.
Before making any decision on redistributing your inheritance, get the right advice and contact the Wills and Estates team at O’Sullivan Sneddon Law 07 3741 0100.