Death Tax
Why is “death tax” in the news lately?
The Victorian State Government is proposing to increase the Supreme Court of Victoria’s probate office fees, in some cases up to 650 per cent.
This has been referred to in the media as a “death tax by stealth”.
Whilst not strictly a tax, it is a very significant increase to the application fee which must be paid by executors when applying for a Grant of Representation (whether a Grant of Probate or Letters of Administration).
A Grant of Probate is formal validation from the Supreme Court that a will is the last will of the deceased and it is required by executors to enable them to access and distribute the deceased’s assets in accordance with their will. This includes payment of all outstanding debts and taxes before assets are distributed. Similarly, where a deceased does not have a will, a Grant of Letters of Administration is required, which will also attract these new higher fees.
The financial burden of these increased fees will ultimately rest on executors, usually grieving family members who will be required to pay such fees out of pocket as the estate assets cannot usually be accessed until probate is granted.
The CEO of the Law Institute of Victoria, Adam Awty, has said “The death of a loved one is probably the hardest time in anyone’s life. These increased fees would add extra stress and financial hardship on families who are already suffering. They can’t access the bank account of their deceased loved one so they need to find the money for filing fees somewhere else.”
What are the new proposed fees?
- For small estates valued less than $250,000, the fee increases from $68.60 to $261.30 (281% increase).
- For estates valued at $250,000 or more, but less than $500,000, the fee increases from $68.60 to $514 (650% increase).
- For estates valued at $2.5 million but less than $5 million, the fee may be increasing from $1502.40 to $7,185.20 (378.3% increase).
- For estates valued at $5 million or more, filing fee increases from $2,318.90 to $15,407.40 (564.4% increase).
It is clear that this increase will be felt most by estates which have significant assets but a tight cashflow – such as family farms, where valuable farmland is often held by individuals and therefore forms part of their estate. In such cases where land exceeds $5 million in value, executors will be required to pay a filing fee at the maximum rate of $15,407.40.
What can be done about it?
Presuming the fee increase is implemented, will-makers should consider the burden this may place on their appointed executors.
Some options to limit the impact of such increased fees include:
- Using other structures to hold assets so that they do not form part of the estate, such as superannuation or family trusts;
- Holding assets in joint names (e.g. with a spouse or family member) so the asset does not form part of the deceased’s estate but rather passes automatically to the survivor;
- Ensuring the executor appointed also inherits cash which does not form part of the estate (e.g. life insurance or superannuation) which they can use to pay the fee; or
- Gifting assets during your lifetime so they do not form part of your estate at all or so as to reduce the size of your estate so it falls below value at which you are required to obtain a Grant of Representation or below the value at which the fee applies. If an estate is valued at $129,850 or less, no fee will be applicable.
Next steps
If this raises concerns for you, it is important you seek legal and financial advice regarding the impact this fee increase may have on your executors and your options.
To discuss this further, please contact one of our Estate Planning lawyers on 5331 4444 (Ballarat) or 5352 4233 (Ararat).
Author: Marnie Papst
Published: 10 October 2024