What Is A Deceased Estate? (ACT)
After someone passes away in the Australian Capital Territory, what the person leaves behind is known as a “deceased estate”. This includes real property, bank accounts, motor vehicles, shares and stocks, and personal/household possessions. In addition to the assets of the deceased, the estate also includes the deceased’s outstanding liabilities, which must be discharged using the funds and/or sale of the assets of the estate. The regulations that apply to managing a deceased estate are set out in the Administration and Probate Act 1929 and reaffirmed by common law decisions. This article looks at the procedure for handling assets and liabilities in a deceased estate in the ACT.
Administration of a Deceased Estate in the ACT
Someone who has carefully prepared their testamentary arrangements will typically have an executor in place ready to administer their estate after their death. A testator should name one or more executors in their will to be responsible for the collection of the assets of the deceased estate, the payment of creditors, and the distribution of bequests according to the wishes expressed in the will.
A deceased estate can only be administered once the Supreme Court of the ACT issues a Grant of Probate. There are several different types of grants that can be used. A Grant of Probate authorises an appointed executor to administer a valid will; a Letter of Administration – No Will is necessary when the deceased has left no will and the estate is intestate; and a Letter of Administration with Will is required when there is a will but no executor is available to administer the deceased estate.
In the ACT, a personal representative cannot implement the bequests of the deceased for six months as they wait for claims against the estate. Therefore six months is the minimum delay between the death of the individual and the distribution of their estate. There may be greater delays if the will is challenged or the deceased estate is contested.
Which Liabilities Are Paid From The Deceased Estate?
A testator should include a provision in their will for the payment of any liabilities. There should be clauses pertaining to the initial burial and funeral expenses but also for long-standing debts. Typically, an executor pays out the debts of the deceased estate before distributing the assets as directed by the will. Any cash in the deceased estate will be used first, and if there are insufficient funds then the executor must arrange for the sale of assets to meet the obligations. The executor is required to sell these assets regardless of whether they were bequeathed in the will to a beneficiary: however, insurance payouts and superannuation death benefits cannot be used to discharge estate debts.
The executor needs to consult an accountant to make sure a last tax return is filed and to assess whether there are any further tax liabilities against the deceased estate. For instance, the estate is responsible for the payment of any tax that results from the testator liquidating assets before their death, and from capital gains on the sale of investments and superannuation payouts.
What If The Debts Cannot Be Discharged?
If the executor finds that the deceased estate does not have enough equity to discharge all the debts, they must pay the debts in the order of precedence dictated by either insolvency law or bankruptcy provisions. Fortunately, the deceased’s family is not responsible for the debts of the deceased estate unless they were also a co-owner, joint borrower or guarantor on the debt.
Insolvency and bankruptcy provisions dictate that the first priority is the funereal and administration expenses of the deceased estate. The personal representative must then take care of all tax liabilities and repay any secured debts including car and home loans. If the deceased had dependent children, any delinquent child support needs to be repaid and arrangements made for continuing child support payments. In the event that the deceased has an outstanding HECS-HELP debt, the liability does not survive the death of the testator, but a payment for the final year of the deceased’s life may be required.
The final category of debt, and the least likely to be paid if the deceased estate is insolvent, is unsecured debts. As such, even if a testator makes provision in their will to repay an unsecured debt to a family member or friend, there is no guarantee that the executor will be able to follow through with this request. This can be a significant issue in cases where family members have contributed deposits for home loans or small business investments. Any testator drafting a will who is concerned about making provision to repay an unsecured loan would be well advised to formalise and register the loan against appropriate security.
The wills and estates team at Armstrong Legal can answer any questions you might have about what constitutes a deceased estate in the ACT. For expert advice on any aspect of testamentary or probate law, please call 1300 038 223 or send a message to make an appointment.