Estate planning is critical in ensuring your wishes are honoured after your passing. An integral aspect of this process is selecting a suitable executor.
Your executor will handle everything from applying to the Supreme Court for a grant of probate, collecting your assets and settling your debts, through to distributing your estate in accordance with your testamentary intentions set out in your Will. Your executor should, of course, be someone you have complete trust in and confidence in their ability to administer your estate appropriately.
For Australians with trusted family members or friends abroad, appointing them as executors may seem logical. However, whilst it is legally permissible to do, appointing a non-resident executor comes with certain complications.
Here's a breakdown of some key considerations if you're thinking about appointing an executor who resides overseas:
Tax implications for non-resident executors
Under Australian law, an estate is regarded as a trust for taxation purposes, with its residency determined by the trustee's residency or where the trust is centrally controlled and managed. The estate is treated as a non-resident trust if probate is granted solely to an executor who is not an Australian resident for tax purposes. This can create significant tax implications.
For instance, the estate will be taxed as a non-resident. This means it will lose eligibility for the tax-free threshold of $18,200 typically accessible for up to three years following the deceased's passing. If any income is generated from your assets in Australia after your death, higher rates of tax will apply on that income.
Additionally, if the executor is a non-resident, the estate may be ineligible for the 50% capital gains tax discount on the sale of Australian property. The main residence exemption, normally applied upon the sale of the principal place of residence post-death, may also be forfeited.
Practical challenges for non-resident executors
An executor located outside of Australia may encounter considerable practical and logistical challenges when administering an Australian estate due to communication barriers, such as differences in time zones and languages. These can hinder efficient coordination with Australian financial institutions, courts, and beneficiaries and can lead to delays in the administration of the estate.
Tasks such as opening bank accounts or transferring title of assets can be difficult to attend to from overseas, as can arranging someone to prepare your house for sale, including clearing it out. It may not be possible for your executor to spend lengthy periods in Australia to attend to these due to their own commitments.
Document processing can also be complex. In Australia specific documentation is mandated for probate. This may be difficult to procure or process promptly from abroad – more so if the executor isn't familiar with Australian procedures and laws.
It is also important to note that the NSW Supreme Court can refuse to issue a grant of probate to an overseas executor. In those circumstances, the overseas executor may be able to appoint an attorney located in New South Wales, pursuant to a Power of Attorney, to act on the executor's behalf in relation to the application for probate.
Alternative solutions: Appointing a local co-executor
The tax implications discussed above won't apply if at least one of your executors is an Australian resident. So, if appointing an overseas executor remains important for personal or familial reasons, many of the challenges can be alleviated by appointing a co-executor within Australia. A local co-executor could be a trusted family member, friend, or a professional such as a licensed trustee company, solicitor or accountant, who can manage day-to-day tasks and fulfill legal requirements on behalf of the estate. This approach allows for a co-executor to directly handle the estate administration within the Australian jurisdiction.
Conclusion
While appointing an overseas executor can be an option in Australia, it requires careful consideration of the legal, tax and administrative challenges involved. Working with estate planning professionals to establish a clear, compliant plan will help safeguard your wishes and reduce the burden on your executor, ensuring the smooth management and distribution of your assets.
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.
