NSW Executor of Will- Liability for Tax Bill?

[winston wolf]

Hi. My father's deceased estate was mostly distributed some 4 years ago after a 2 year FPA struggle. The only thing left in the estate are 4 small (<$6k I think) managed funds held in trust by the executor until the beneficiaries turn 21.

There were originally 7 trusts but 3 have now been distributed.

The executor has advised that the ATO has made a demand for unpaid tax on the funds.

Unfortunately the executor is very uncommunicative and this has only come to light during the processes of trying to extract statements of the trusts current financial position.

So the questions are.
Who is responsible for any tax liability on the already distributed trusts?
Is the executor of will liable for any additional loss(penalties, interest etc) due to his ineptitude?
What would be required to transfer his trusteeship of three of the trusts to me the father of those beneficiaries if he agreed (LOL fat chance).

Thanks in advance

 

[Sophea]

Hi Winston,

Generally speaking - with respect to the distribution of the estate (not trusts) a trustee is not supposed to distribute income or assets of an estate until any outstanding tax liabilities are determined - which requires a notice of assessment to be issued for the estate.

A trustee can distribute some of the estate to beneficiaries if they are confident that the remainder of the estate is sufficient to cover any outstanding tax liabilities. Beneficiaries who have received a payment of income are considered to presently entitled to them and they must declare them and pay tax on those amounts in their own tax returns.

I believe that if executors fail to pay taxes on the estate, they may be personally liable for interest and penalties. Perhaps someone with more experience in this area could comment.

 

[Sarah J]

Are the executor's also trustees of the trust? Essentially, the trustees are liable for tax on any "income" earned by the trust. They then recover this in the form of indemnity by the beneficiaries or trust money. Any tax liabilities or other expenses are eventually born out of the trust account.

 

[winston wolf]

Thanks for the replys.

The accounts were originally opened I believe as trust accounts for minors. Therefore no trust deeds would have been needed.
When my father died the executor became trustee.

I believe the estate taxes are OK this is tax on the managed funds.
I need to grill the executor for more details.

 

[Sarah J]

Good luck Winston. As trustee/executor, there is an obligation to keep accurate and detailed accounts so you should be able to check the taxation paid/owed and funds taken out as reimbursement of expenses/fees/costs. If this is not done, there would be grounds for an action in breach of fiduciary duty and mismanagement.