Many beneficiaries named in a will or who are entitled to the deceased estate under intestacy laws are often surprised to learn that assets which were apparently owned by the deceased does not in fact fall within the deceased estate. Instead, another person may be entitled to the asset.
The first question an executor or administrator needs to determine is whether the asset held by the deceased falls under the deceased estate.
If it does, then the assets are to be distributed to the beneficiaries under the will or to the beneficiaries entitled under the law if the deceased did not have a will. These assets and their respective values are to be recorded in the “List of Assets and Liabilities” of the deceased in the application for probate or letters of administration filed in court.
If it does not fall within the deceased estate, then the asset and the manner of holding of the asset by the deceased must be carefully scrutinised to determine how and to whom the asset is to be distributed. These assets are not recorded in the list of assets and liabilities filed in the application for probate or letters of administration.
In some cases, it is clear cut that the asset falls under the deceased estate such as when the deceased was the sole owner of real estate or bank accounts. In others, it could go either way depending on the decisions made by the deceased during his or her lifetime or the terms contained in agreements or deeds entered into by the deceased prior to his or her death.
Identifying commonly held assets
Below are examples of assets falling within or outside the deceased estate. This list is not exhaustive. It deals with some commonly held assets.
| Asset | Falls within the Deceased Estate | Falls outside of the Deceased Estate |
|---|---|---|
| Real estate owned by the deceased in his or her sole name | Yes, falls within the deceased estate | No |
| Real estate owned by the deceased and another person as “joint tenants” | No | The interest of the deceased in the real estate as a joint tenant” passes to the other owner of the real estate by way of right of survivorship |
| Real estate owned by the deceased and another person or persons as “tenants in common” | Yes, the interest of the deceased in the real estate as a tenant in common falls within the deceased estate | No |
| Bank accounts held by the deceased in his or sole name | Yes, falls within the deceased estate | No |
| Bank accounts held by the deceased with another person or persons in joint names | No | The interest of the deceased in the bank account as a joint holder passes to the other account holder by way of right of survivorship |
| Superannuation held by the deceased in his or her name | Possibly falls within the deceased estate: -
Distribution of the superannuation death benefits is governed by the superannuation trust deed and superannuation legislation | Possibly, falls outside the deceased estate: -
|
| A discretionary family trust where the deceased was a beneficiary and/or where the deceased controlled the trust as trustee and/or was the appointor or guardian of the trust | No, the assets of the discretionary trust will not fall under the deceased estate. It continues to be an asset of the trust. In assets held by a discretionary trust, the question is who controls the trust. The person who controls the discretionary trust following the death of the deceased will control the manner the trust assets are to be distributed. To determine who controls the trust, the terms of the trust deed must be considered. Note also that the trust may owe the deceased money for funds loaned by the deceased to the trust. These loans fall within the estate of the deceased as these loans are due to the deceased in his or her individual capacity. | Yes, usually, the trust deed sets out who will take over as trustee, appointor and guardian when the individual who holds these positions pass away. In some cases, the executor or administrator of the estate steps into the shoes of the trustee and/or appointor and/or guardian of the trust. If this occurs, the executor or administrator will then have the power to decide to whom the assets are to be distributed pursuant to the terms of the trust. |
| Stocks and shares held by the deceased in his or her sole name | Yes | No |
| Stocks and share held by the deceased with another person | No | Yes, the interest of the deceased in the stocks and shares as joint holder passes to the other shareholder by way of right of survivorship |
| Business and the assets of the business owned by the deceased as a sole proprietor | Yes | No |
| Business and the assets of the business owned by the deceased in partnership with another person or persons | Yes, and note that subject to any agreement between the partners: -
| No |
| Business and the assets of the business owned by a company where the deceased was the sole shareholder | Yes, and note that the company is a separate legal entity from the deceased. The business and its assets will continue to be owned by the company and will pass to the deceased estate through the shares owned by the deceased in the company | No |
| Business and the assets of the business owned by a company where the deceased owned shares in the company with other shareholders | Yes, the deceased estate would be entitled to a share of the value of the business and its assets in accordance with the shareholding of the deceased in the company. There may be a shareholders agreement setting out that upon the death of a shareholder, the other shareholders have a right to acquire the deceased’s shares with a formula to compute the value of the deceased’s shares. | No |
From the above list, it can be seen that for some assets, the rightful ownership of the asset may be tricky following the death of the deceased and will need careful scrutiny.
Important to consider liabilities of a deceased estate
Besides unravelling the assets of the deceased, an executor or administrator must also consider the liabilities of the deceased estate. This would cover all liabilities incurred by the deceased in his or her personal capacity such as mortgages, loans and other debts. It can be a complicated process to determine the liabilities of the deceased. For example, the deceased may be a shareholder of a company and had taken loans from the company which are recorded in the company’s financial statements. These loans are now liabilities of the deceased estate.
The executor or administrator of a deceased estate must as quickly as possible to investigate the deceased estate to determine not only the assets but also the liabilities of the deceased. This will assist in preserving the asset for the benefit of the estate and at the same time, steps may be taken to limit the liabilities from escalating while the estate is being sorted out.
If you require assistance in applying for a grant of probate or letters of administration or have any questions relating to the assets and liabilities of a deceased estate, contact us at Robertson Hayles Lawyers on (08) 9325 1700 or by email at enquiry@robertsonhayles.com.
Note
The above content is only intended to provide a general overview of the topic discussed. It is not intended to be comprehensive nor does it constitute legal advice. You should seek legal advice specific to your circumstances before acting or relying on any of the above content.