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Deceased Estates Exemption
Section 42 of the Duties Act 2000 and testamentary trusts
An exemption from duty is available under section 42(1)(a) of the Duties Act 2000 (the Act) on a transfer of dutiable property, not made for valuable consideration, by the legal personal representative of a deceased person (the executor) to a beneficiary. The transfer must be made under and in conformity with the trusts contained in the will of the deceased.
There are also instances where a testator leaves certain assets, including dutiable property such as land, to a trustee or trustees of a testamentary trust.
What is a testamentary trust?
A testamentary trust is a trust which arises upon the death of the testator, and which is specified in his or her will. In these circumstances the testator intends for the trustee to hold the land in accordance with the terms of the testamentary trust for specified beneficiaries. At some future time the trustee distributes the land to the beneficiaries of that trust.
Duty implications
In recent times, the question has arisen as to whether section 42(1)(a) of the Act would apply to exempt the transfer of dutiable property from the executor of the will to the trustee of the testamentary trust, where the trustee is someone other than the executor.
Where this occurs, there will, in effect, be two transfers:
- the first, being a transfer of dutiable property from the deceased estate, i.e. from the executor of the will to the trustee of the testamentary trust (the First Transfer).
- the second, being a transfer of dutiable property from the trust at a future date, i.e. from the trustee of the testamentary trust to the beneficiaries of that trust (the Second Transfer).
The State Revenue Office has considered this issue and, for the purposes of administering section 42(1)(a) of the Act, will treat the First Transfer (i.e. from the executor of the will to the trustee of the testamentary trust) as if it were a transfer to a beneficiary, so long as the transfer is made in conformity with the trusts contained in the will of the deceased person, and is not for valuable consideration.
The Second Transfer from the trustee of the testamentary trust to a beneficiary of that trust may be exempt from duty under other exemptions in the Act (e.g. sections 36, 36A, etc). This will depend on the type of testamentary trust the land is held subject to and the circumstances of the transaction.
Where the will states that the executor and the trustee of testamentary trust are the same person
In this scenario, the executor's role changes to that of the trustee of the testamentary trust when administration of the estate is complete - there are no duty implications in this instance.
The later transfer by the trustee of the trust to specified beneficiaries may be dutiable. The exemption under section 42(1)(a) does not apply given the trustee is no longer the legal personal representative of the deceased, although the other exemptions in the Act may (e.g. sections 36, 36A, etc).