Components of a Deceased Estate

Assets Included in a Deceased Estate

Only assets owned by the deceased solely or as tenants in common with another person at the time of death fall into a deceased estate. Examples of assets falling into an estate include real estate, shareholdings, bank accounts, and cars. A deceased’s personal property, will also fall into their deceased estate including household items, jewellery, electronic items, and other personal belongings. 

While assets that are held solely by the deceased or as tenants in common with another person fall into the deceased estate, assets that are held as joint tenants – which commonly occurs in relation to real estate or bank accounts – pass to the surviving owner under the rules of survivorship.

Assets Not Included in a Deceased Estate

In addition to assets held as joint tenants with another person, other assets that do not fall into a deceased estate include assets held in companies, trusts and superannuation death benefits.

In some cases, however, any interest in the trust or company itself may fall into the deceased estate if the deceased held units an interest in the trust (i.e. units in a unit trust) or a company (i.e. shares in a company), or superannuation (where the super fund has been directed to pay the money to the estate’s Legal Personal Representative, in which case the superannuation will form part of the deceased estate). 

Liabilities and Debts of the Deceased

Once the executor has identified and called-in the deceased’s assets they will also need to identify and pay the deceased’s debts and liabilities. 

These must be paid before the estate is distributed. 

Personal Belongings and Non-Financial Assets

Personal belongings and non-financial assets can include items such as motor vehicles, furniture, jewellery, clothing, collections, books, memorabilia, and other personal possessions. If these assets are solely owned, they will fall into the deceased estate. If these assets are owned as joint tenants or jointly with some other person, the property will pass to the surviving owner under the rules of survivorship.

What to Do When the Estate is Insolvent

In NSW, if a deceased estate is insolvent – that is – it’s debts exceeds its assets, specific rules apply dictating the order in which the debts and liabilities are to be paid.

The funeral, testamentary, and administration expenses have priority, followed by secured and unsecured creditors. What this means in practice is that the estate assets must first be applied towards the payment of the funeral and disposal of the body, followed by expenses relating to the administration of the estate, followed then by secured debts and lastly, unsecured debts. 

In effect, an insolvent estate is administered under the laws of bankruptcy, and the creditors (both secured and unsecured) will be subject to and need to seek payment through a legal process under the insolvent estate provisions. 

The beneficiaries may go unpaid if the estate is inadequate. 

The Process of Administering a Deceased Estate

1. Identifying and Valuing Estate Assets

One of the first steps involves identifying the estate assets. This needs to be done before applying for probate as the estate assets will need to be disclosed to the Court in the probate application. 

Searching for assets usually involves asking the deceased’s next of kin and relatives to advise what assets the deceased held at the time of their death. The executor or administrator may also instruct their lawyer to conduct formal searches (such as land title and ASIC), write to assets holders (i.e. bank, super fund), and conduct other more informal searches such as lodging a Death Notification. 

2. Obtaining a Grant of Probate or Letters of Administration

When a person dies with a will (known as the testator), the person named in the will as executor has the right to apply to the Supreme Court of NSW for a Grant of Probate. Once granted, the executor will obtain the power and authority to administer the deceased’s estate, and must distribute the estate to those who are entitled. 

If none of the named executors are willing or able to act as executor – for instance if they have all previously died, or are too old or infirm to act as executor – another person (typically the person with the largest interest in the estate) may need to apply to the Supreme Court for Letters of Administration. If the person is appointed administrator, they would then have the power and authority to administer the estate.

Where a person dies without a valid will (known as dying intestate), the estate will be distributed in accordance with the rules of intestacy. In this instance, as in the case where all executors are unable or unwilling to act – another person (typically the person with the largest interest in the estate under the rules of intestacy) may need to apply to the Supreme Court for Letters of Administration. Once appointed administrator, they would then have the power and authority to administer the estate.

In some cases, where there is no person willing or able to act as executor or administrator, the public trustee may apply for administration. 

The administration of deceased estates can be complex and time-consuming; whether the executor needs to apply for Probate or apply for Letters of Administration, both require the preparation and lodgment of Court documents and usually require the guidance of an experienced Wills and Estate lawyer. 

3. Calling in the Estate Assets

Once probate has been granted, the executor or administrator will have the power and authority to “call-in” the estate assets.

The executor or administrator will usually open a new bank account for the estate and request all monies held by the deceased to be paid into the new bank account. Subject to entitlements, they may also request the superannuation death benefits and superannuation payouts be paid into the account. Alternatively, the executor or administrator may instruct their lawyer to call the assets into the Solicitor’s Trust Account. 

In relation to real estate and company shareholdings, the executor or administrator will usually transfer these assets from the deceased’s name into their name before dealing with them in accordance with the terms of the will or rules of intestacy. 

4. Paying Off Debts and Liabilities

The executor or administrator is required to pay the debts of the deceased person and pay the debts of the deceased estate (including funeral, testamentary and administration expenses) before any assets are distributed to beneficiaries. 

The deceased’s debts may include personal loans, family loans, and any bills or debt outstanding including tax debts. 

Debts of the estate may include the funeral expenses, burial expenses, legal costs, court fees, and any estate tax debts. 

Only after both the deceased’s and the estate’s liabilities and expenses have been paid (or adequate reserves have been set aside for payment) can the executor proceed with distributing the estate to the beneficiaries under the will or, in the case of an administrator, to those entitled under the rules of intestacy.

5. Distributing the Assets to Beneficiaries

Once the executor or administrator has paid (or has ensured the future payment of) all funeral, testamentary and administrative expenses, they may proceed with distributing specific property or remaining assets to beneficiaries entitled under the terms of the will or under the rules of intestacy. 

The executor or administrator may make interim distributions throughout the administration, followed by a final distribution at the end of the administration, or they may simply make one distribution at the end of the administration. 

Legal Responsibilities of the Executor

The executor has their fiduciary duty – that is, a legal obligation to act in the best interests of the estate and the nominated beneficiaries.

Each Australian state has its own laws governing the role of an executor in administering a deceased person’s estate. In NSW, the executor’s rights and responsibilities are primarily outlined in the Succession Act 2006 (NSW) and the Probate and Administration Act 1898 (NSW).

These laws grant the executor the right to apply for probate and, once appointed, to call in and manage the estate’s assets. The executor is responsible for paying the funeral and burial costs, paying the deceased’s liabilities (such as personal debts, bills, and any tax liabilities), and paying estate expenses (including court fees, legal fees, and tax liabilities). They must then distribute the estate to beneficiaries under the will or those entitled on intestacy. Executors are also required to defend the estate against any legal claims. 

Most executors elect to engage an experienced probate lawyer to help navigate their responsibilities as an executor.

Distribution of Assets in a Deceased Estate

Finalising a Deceased Estate

Preparing Final Tax Returns

An executor’s solicitor will usually engage an accountant to prepare both the deceased’s final tax return(s) and the estate’s tax return(s). The executor needs to make sure all tax liabilities are paid or can be paid prior to distributing assets from the estate. 

Once the final tax return is lodged for both the deceased and the estate, and all tax liabilities have or will be paid, the executor and administrator can proceed towards distribution. 

Discharging the Executor’s Duties

Once all debts and liabilities of the deceased and the estate have been paid, and the beneficiaries have received what they’re entitled to under the terms of the will or the laws of intestacy, the executor or administrator’s role will usually come to an end. 

If the will creates trusts, those trust assets or funds will be settled upon (i.e. transferred to or control passed to) the trustee responsible for administering the trust. 

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