A “deceased estate” (also simply called an estate) refers to all the assets and liabilities left behind by a person when they pass away.
Assets can include real estate, vehicles, bank accounts with a positive balance, shares, personal belongings (such as jewellery and household goods), unpaid employment entitlements, life insurance policy rights, contractual rights, intellectual property and rights to royalties. Domestic pets are also considered part of the estate.
Superannuation death benefits won’t form part of a person’s estate unless they are paid into the estate by the Trustee of the superannuation fund.
The debts and liabilities that a person holds during their life often continue and must be paid out from the estate. Liabilities of an estate can include bank accounts with a negative balance (such as credit cards or mortgages), tax liabilities, debts, and lease or rental obligations. If the person had a HECS/HELP debt and earned enough in their final year that they had to make a repayment, that repayment will be an estate liability. The balance of the
HECS/HELP debt, however, is written off and does not become an estate liability.
Who is responsible for managing a deceased estate?
The person responsible for administering a deceased estate is known as the “legal personal representative” (LPR). An LPR will either be the Executor appointed under a Will, or an Administrator appointed by the Court in cases where the deceased didn’t leave a valid Will nominating an Executor.
Where there is no Will, the person who is entitled to receive the greatest share of the estate under intestacy will generally have the first right to be the Administrator of the estate. Similarly, if there is a Will but it doesn’t nominate an Executor who is willing or able to act, then the person or persons who are entitled to receive most under the Will are generally entitled to apply to be the estate’s Administrators.
How is a deceased estate administered?
Managing and distributing a deceased estate is a process known as estate administration. This usually involves several steps including:
- Identifying estate assets and liabilities.
- Locating the final Will of the deceased (if there is one).
- Obtaining a Grant of Representation: depending on the estate’s assets, the Executor or Administrator may need to be formally appointed by the Probate Office of the Supreme Court of Victoria to manage the estate.
- Calling in the estate assets: this includes closing bank accounts, selling or transferring property and other assets, and ensuring all legal and financial matters are resolved.
- Paying liabilities: the Executor or Administrator must use the estate’s assets to pay off any debts and taxes owed by the deceased or the estate.
- Distributing the remaining assets: after all liabilities are settled, the remaining assets can then be distributed to the beneficiaries as outlined in the Will or according to the laws of intestacy (if there is no valid Will).
The exact process will vary depending on the estate assets and liabilities, whether the deceased left a Will and if any claims are made against the estate.
Paying debts and liabilities
Before distributing assets to beneficiaries, the Executor/Administrator must ensure that they can settle all debts and liabilities of the estate. This includes paying for the funeral, discharging debts like mortgages and credit card balances, and ensuring that if a final personal tax return or an estate tax return is required these are lodged and any taxes are paid. An estate’s taxable income may include interest on estate funds and capital gains that are realised by selling shares or real estate. There may also be tax payable on a superannuation death benefit that is paid into the estate, though this will vary from case to case.
While most assets of the estate can be used to pay its liabilities, superannuation death benefits and life insurance proceeds are usually an exception. All other assets in the estate can be used by the Executor or Administrator to pay liabilities, and there is a specific order in which they can be used. Usually, the assets that are not specifically given to anyone in the Will are used first, but if those are not enough to pay the liabilities then other assets will also
be applied. This can mean that even though a Will gives a particular asset to a beneficiary, that asset may be required to pay liabilities. For example, an executor cannot transfer a property to a beneficiary if liabilities need to be paid and the property is the only asset. If the estate lacks sufficient assets to cover its liabilities, it is considered insolvent. You can find additional information about insolvent estates in our article.
How can Novum Law Group assist?
At Novum Law Group, our team offers expert advice and guidance in administering deceased estates. If you have a query about a deceased estate, our Deceased Estates team can assist. Please call us on 9063 0300 or send us an email to discuss with one of our lawyers, or click here to make an appointment.
Authors
Sheredyn Legg
