A beneficiary is a person, an entity or a charity nominated by a Will maker to receive benefits from their estate once they pass. A Will maker can name whoever they want as a beneficiary under their Will. If you are named a beneficiary, there are certain rights and responsibilities you should be aware of. In this article, we consider the 5 key things that the beneficiary of an estate must consider in New South Wales.
What is a beneficiary?
Strictly speaking, a person is only considered a beneficiary if they are named in the Will as someone who is entitled to receive a certain portion of the deceased's estate.
Where the deceased has not left a Will (where rules of intestacy apply), or where the deceased has left a Will but not named a person (or persons) who may otherwise be entitled under the deceased's estate, the term 'beneficiary' is not used, but rather they may be an 'eligible person'.
Under Chapter 3 of the Succession Act 2006 (NSW), an 'eligible person', who may be a beneficiary named in the Will or someone who has been left out of the Will, can bring a Family Provision Claim in Court against the deceased's estate, whereby they request the Court to make an order for them (as an eligible person) to "receive adequate provision for their proper maintenance, education and advancement in life" i.
What should a beneficiary consider?
As we have explored in our article - 5 things Executors of an estate must do, the assets of a deceased's estate will only be distributed to its beneficiaries once the assets have been called in, and the liabilities of the estate have been paid. Where a Grant of Probate is required, distribution to the beneficiaries can only occur after Probate has been granted to the executor named in the Will. You can learn more about what a Grant of Probate is here.
There are five key things that a beneficiary should think about, as outlined below:
- What are your rights and entitlements as a beneficiary?
As a beneficiary of an estate, you have a number of rights, in addition to your entitlement to the distribution of the deceased's estate. Therefore, it is important to know your rights before you receive any benefit under a deceased's estate.
Amongst other things, if you are a beneficiary named in the Will, your rights include:
The existence of a Will
You have the right to be informed that the deceased has left a Will naming you a beneficiary under their Will.
Generally, a beneficiary may be informed of the existence of a Will either by the Will maker themselves during their lifetime or following their death by the executor nominated in the Will or their legal representatives.
To inspect or be given copies of the Will
You are entitled to inspect or be given a copy of the Will, which includes a revoked Will, a document purporting to be a Will, a part of a Will or a copy of a Will ii.
A person who has possession or control of the Will, as described above, must allow the beneficiary to inspect or be given copies of the Will (at their own expense)iii. This is usually the executor or their solicitor.
Notification of your entitlement and the liabilities of the Estate
Prior to any distribution of the estate, you have the right to be notified of:
· your entitlement under the deceased's estate and the time frame within which you can expect to receive your entitlement (generally within 12 months); and
· the liabilities which the estate may have, especially where such liability is associated with your particular entitlement as a beneficiary.
These liabilities may include any debts and tax liabilities of the estate.
Statement of Distribution
You are entitled to receive an accurate 'Statement of Distribution' from the executor, which contains information on your entitlement or distribution (interim or final) and how such distribution was calculated.
This Statement of Distribution is intended to allow you as the beneficiary to complete your tax return for the respective financial year.
To be kept up-to-date of the status of the estate and any delays in distribution
While the executor administers the estate, you have the right to be kept informed of the status of the estate and also of any reasonable delays in distributing the estate.
As a beneficiary, you are entitled to receive your distribution within 12 months of the deceased's death. Any reason for the delay in receiving your entitlement must be reasonably explained by the executor.
- Can you reject a distribution from the Estate?
There may be a number of valid reasons as to why a beneficiary might refuse to receive the distribution that they are entitled to under a deceased's estate. Sometimes, the cost of inheriting the gift, such as tax implications, can outweigh the benefit of the gift itself. As a beneficiary, you are well within your rights to refuse any distribution under the estate.
If this is the case, as a beneficiary, you must refuse the distribution, after the deceased's death, in writing as well as in conduct to the executor. The rejection must also be done prior to the distribution being made. It's also important to note that once the rejection has been made and acknowledged by the estate, it cannot be retracted.
If you are made aware of an entitlement you will receive as a beneficiary by the Will maker themselves during their lifetime, (i.e. prior to their passing) but you do not wish to receive it, you will need to advise the Will maker so that they can revise their Will to benefit someone else in your place instead.
- Will you need to pay tax on a distribution from the Estate?
Some distributions from a deceased estate can carry certain tax obligations, such as Capital Gains Tax (CGT), which a beneficiary may be subject to pay.
If the Will contains testamentary trust provisions (see our fact sheet below to learn more) there may be ways to minimise the tax implications (subject to the provisions of the trust and the arrangements made by the trustee). For example, if the beneficiary is entitled to income from the deceased's estate, the income will be assessable in the financial year that the income arose (not the year it is received).
Our Testamentary Discretionary Trusts Info Sheet delves into circumstances where the Will includes testamentary trust provisions.
Generally, a beneficiary will not be required to pay tax on inheritances of cash, shares, property or other gifts. However, if a beneficiary sells or otherwise disposes of an asset received as part of the deceased's estate, the asset may be subject to Capital Gains Tax (CGT). This is separate from any tax on a superannuation death benefit.
- Can you dispute the distribution you have been gifted, despite being named a beneficiary?
As mentioned earlier, a beneficiary under the Will may be able to bring a Family Provision Claim against the estate if they feel they have been unfairly provided for in the Will. If, as a beneficiary, you wish to challenge the Will, you must prove that the current benefit allocated to you under the Will is not adequate and that you are entitled to more for the purpose of "proper maintenance, education and advancement in life."
- Are your costs for receiving a distribution covered by the Estate?
Unless otherwise ordered by the Court, beneficiaries of a deceased estate are not entitled to have any costs related to the distribution of the estate, reimbursed, or otherwise covered by the Estate. A beneficiary will be liable for any taxes, or fees associated with their entitlement, and this is not subject to be paid by the Estate.
i Section 59(1)(c) of the Succession Act 2006 (NSW).
ii Section 54(1) of the Succession Act 2006 (NSW).
iii Section 54(2) of the Succession Act 2006 (NSW).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.