Have you thought about the capital gains tax implications of your will?   Maybe not.  It is not something we ordinarily come across in our day or in conversation.

However, capital gains tax should be an estate planning consideration. Your will should be drafted to protect your beneficiaries from paying this tax on inheriting assets you leave for them.

Where a beneficiary lives in another country, capital gains tax would be charged on applicable assets passing to your beneficiary pursuant to your will.  A simple will cannot solve this for you.

This is important. Even if all your beneficiaries currently live in Australia, they may live overseas in the future.  Where an applicable asset passes directly to a foreign resident as would happen in a ‘simple’ will, capital gains tax is triggered.

Testamentary trust

That capital gains tax event can be prevented by instead passing your assets into a testamentary discretionary trust with an Australian trustee under which the foreign resident is a beneficiary.  In other words, you need a sophisticated will. One that creates a testamentary trust to receive and hold the asset in Australia for your beneficiary.

What if your grandchildren become beneficiaries under your will and a grandchild lives overseas in the future?  In a well drafted will, should something happen to a child leaving behind spouse and/or children, they could become your beneficiaries by substitution (provided this is your intention).

Saving money now in doing a will could cost more in taxes to your beneficiary.  A smarter will would overcome this capital gains tax event. Further, it would give your beneficiary options to reduce income taxes where you leave them an income generating asset.

Have a chat with your financial planner or tax adviser. Find out how capital gains tax would impact your circumstances.

With a ‘simple’ will, applicable assets passing to a foreign beneficiary can trigger Capital Gains Tax reducing the value of the inheritance received.  With a smarter will, that can be overcome by using a testamentary discretionary trust. 

Even if your children live in Australia now, they may move overseas in the future.