Shares and Death

By Jason Fittler

When you inherit shares they can come with their own problems as well and a high level of complexity.

It is important to make sure that the shares are passed on in the most tax effective manner to the beneficiary.

To do this you need to ensure that you understand a number of key issues.

Tax

The cost base of the share, which you inherit, is the cost base at which the shares were initially purchased and NOT the cost of the shares at the time you inherited them as long as they were purchased post 1985.

If purchased pre 1985, then the cost base will be the value at the date inherited.

It is therefore very important to ensure that you have records of what the shares originally cost.

Normally capital gains tax rules apply in regards to the 50% discount method when owned longer than 12-months. The tax is payable by the beneficiary when they sell the shares.

You also need to consider beneficiaries who already have high incomes.

The income from the shares may cause further tax issues along with any capital gains.

They also now have an asset, which they cannot move into a better structure without incurring Capital Gains tax. 

Does the Estate Sell the Shares or Transfer Them to the Beneficiaries?

Quite often the beneficiaries want the shares transferred into a third name and will continue to hold them. There are a couple of key issues to consider before the decision is made:

If you do not intend to hold the shares long-term is if often cheaper to simply sell the shares in the estate and distribute the cash.

Structure in Which the Shares Are Held

For high net worth clients with large share portfolios you may want to consider holding the shares in a more efficient structure for estate planning such as a company or trust. This way the portfolio simply stays as it is. New directors or trustees are appointed and the beneficiaries can simply enjoy the ongoing dividends and growth, which can be distributed each year. This also allows for a more tax effective structure for those beneficiaries who are already on high incomes. For these beneficiaries, the extra income or capital gains will simply cause a tax problem.

Costs

The costs of administering an estate will increase the more complex the estate is to administer.

Too many executors, means more paperwork is required to be signed, which involves more costs.

Off Market Transfer of shares will again incur more costs. It may be cheaper to simply sell the shares in the estate.

For more information please call me on (07) 4771 4577.