Selling a deceased estate: The tax implications, when to list, what happens when there’s no will

Few people are truly prepared for the death of a loved one, and while the passing is a painful at the best of times, the journey is often made harder with the need to sell the deceased’s home. 

From funeral arrangements, to care of dependants, there’s an A to Z list of considerations following the passing of a family member or friend.

But perhaps the most stressful of tasks is selling their home, especially if there are multiple parties and beneficiaries involved, and even more so if there’s no will, which is very common.

Though it’s a daunting process, during an emotionally charged time, being savvy when dealing with the practicalities of selling a deceased estate — and understanding the complex ins and outs of the process — is vital.

There are some serious potential financial risks involved if you get it wrong. 

Know who the executor is

A will usually outlines both the beneficiaries and the appointment of an executor, who is the person who will administer a will after someone passes away.

In Australia, a grant of probate or, when no executor has been named, a grant of letters of administration, is required before a house can be sold, except when property is held as joint tenants – as in the case of a couple.  

Unless the title has been transferred from the deceased to the joint tenant, executor, or personal representative, the property can’t be sold.

“You need to clarify firstly who the legal owner of the property is? Is there an estate in charge with directors, or is it one individual?” James Labiris, partner and auctioneer at Nelson Alexander, said. 

“It’s also paramount that, as a collective, there is agreement on who the decision makers are and have them present from day one.”

A will cannot be administered until a grant of probate has been issued. 

Therefore, it is advisable that it is applied for as soon as possible as it can take upwards of four weeks for the document to be issued.

That can cause significant delays in the selling process. 

“Having clear documentation, including a non-contested will nominating an executor, streamlines the processes of dealing with professionals and complying with legal and regulatory requirements,” according to Shukri Barbara, founder of Property Tax Specialists. 

Almost half of Australians don’t leave a will when they die. Picture: Getty

However, many Australians don’t leave a will, which can add a further layer of difficulties. 

According to the Australian Bureau of Statistics, about 45% of Australians die intestate — that is, without a will. In this circumstance, family and friends must decide on the executor themselves. 

That person, often a spouse or child to the deceased, then applies for a grant of letters of administration, which replaces the need for a grant of probate. This allows the court to appoint that person as the legal personal representative of the estate.

Learn the legalities

Doing legal due diligence from the get-go is vital. 

Before attempting to sell the property, it’s important to look into the legal requirements, especially as the laws and processes for selling an inherited property vary from state to state. 

As part of the process, the executor needs to make sure that all taxes and debts incurred by the deceased have been paid off, and that all entitlements have been transferred to the right people owed. 

When it comes to the property, it is handled in almost the same way as any other real estate transaction, minus a few elements. 

“Depending on the type of property that is being transferred by the estate, the tax impact on the beneficiaries depends on a variety of factors,” explained Mr Barbara,  who has more than three decades experience in dealing with deceased estate tax services. 

“Most common ones include whether the inherited real estate is to be sold, held for rental, or occupied as a main residence. The type of property is also a consideration, for example, is it commercial, residential, investment, or other type. This has to be layered on top of personal tax situation of the individual beneficiary.”

The need to sell a loved one’s home after their death can add extra trauma to an already difficult situation. Picture: Getty

Communication is key

During the weeks and months after the death of a loved one, many important decisions need to be made — often together with other family members and friends. 

And when multiple parties are involved, it’s not unusual for disagreements to occur and long-held grievances to surface, which can often lead to a contesting of the will. 

In these circumstances, Mr Labiris said the most important factor is good communication and that starting a dialogue early is vital to a successful property campaign. 

“Depending on how many decision makers there are, everyone needs to be on the same page as a slight change in strategy, or a sudden change of heart by one party, could derail the entire campaign,” he said.

“The agent needs to be a middle man. The agent can never ‘take sides’. The agent needs to completely support all parties throughout the whole process regardless of the family dynamic.

“We often tell vendors of a deceased estate that our initial strategy meeting will take longer than usual, we need to make sure that each of us are aligned on marketing, method of sale, price, and timing. We all need to be unified in these decisions. Unless all parties are on board and happy throughout the process the sale rarely works.”

Selling a deceased estate can come with numerous pitfalls. Picture: Getty

Avoiding common pitfalls

A lack of uniformity with decision-making aside, one of the most common pitfalls according to Mr Labiris is multiple parties not being honest about their property price expectations. 

“Change in price expectations due to one party not being honest from the beginning is a big one. Each price point and each method of sale will require a different strategy from the agent, so a late change in price expectations could completely derail the campaign and send a bad message to the market.”

Another pitfall fits into the ‘time is money’ basket. 

While there is not a set time that someone has to sell a house within after the death of a loved one, leaving it too long can have a significant tax impact.

“Timing is important,” Mr Barbara said.

“For a property that was the main residence of the deceased, rules allow two years in which a sale can be made with no capital gains tax (CGT) impact on either the estate, or the beneficiary.

“You can be exempt from CGT on disposal of an inherited dwelling if you dispose of it within two years of the person’s death. After the three financial years period expires, different deceased estate tax rates apply, which exclude any tax free threshold.”

An Australian Taxation Office statistical sample showed that 86% of deceased estates do not lodge a return for more than three years, suggesting that most deceased estates are finalised within three years of the date of death.

When there are multiple beneficiaries, it can often be worth selling property quickly in order to finalise disbursement of the will. 

Enlisting the help of experts when selling a deceased estate is important, agent James Labiris says. Picture: James Labiris

To market, to market

Preparing the house for sale, the executor essentially becomes the vendor. 

As such, they will need to collect multiple quotes for any costs related to selling the property, including contractors for any repairs that need to he done, and appraisals of the property from real estate agents, before finally engaging an agent to manage the sale.

“There’s no real difference in the actual sales process,” Mr Labiris said. 

“Aside from the fact that instead of one or two vendors, you might have three or four or more. As such, just as with any other campaign, marketing the property is important and is an investment to a good result — the more it’s marketed well, the more buyers turn up.”

The executor should aim to maintain transparency, keeping beneficiaries informed throughout the process. Sale by auction lends itself well to this, as the process is naturally transparent. Once the property is sold, the executor distributes the funds to the beneficiaries, according to what’s outlined in the will.”

The value of experts

When it comes to navigating the process of selling deceased estate, leaning on the experts is important, both to get the best possible outcome and to lighten the load during what is an already stressful time. 

“Getting advice from property tax specialists, lawyers ,and other professionals as to alternative options and their tax effects may save a lot of tax as much as hassle and worry in the long run,” Mr Barbara said. 

Similarly, a good real estate agent allows you to streamline your resources and provides both knowledge and support to help reduce the burden, speed up the process and give you peace of mind.

“Find a trustworthy agent who everyone is comfortable with,” Mr Labiris agreed.

“Together, workshop the best strategy to support all aspects and take their advice. Remember, they are the experts and they’re there to help you maximise your result.”