How does property inheritance work?

By Cameron Thomson · · 3 min read
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The passing of a loved one can obviously be very challenging and sometimes comes with the additional strain of handling family personal affairs. One such area of concern can be an inheritance. While it can be emotionally difficult, it’s important to know what you need to keep in mind when you’re looking at property inheritance. 

The inheritance process typically involves legal procedures and may vary depending on the specific state or territory laws. While this article is a general overview, it's important to consult with a legal professional or seek advice from the relevant authority to understand the specific laws and processes in your situation.

Is there a property inheritance tax?

There aren’t any inheritance or estate taxes in Australia. However, if you sell the property, then capital gains tax (CGT) may apply—that being said, if you dispose of the property within two years, then you will be exempt from paying CGT. 

Do keep in mind that, if you rent out the property (or it is being rented out), then you may find that income tax applies and is to be paid by the beneficiary of the property.

Make sure your legal will is written

You’ve probably heard about wills in popular media, but do you know how they actually work?

Basically, a will is a legal document that outlines how a person's assets, including their property should be distributed after their death. If the deceased has a valid will, it will specify who will inherit the property and in what proportion.

It’s important to have a will written if you or a loved one passes away if you don’t have an up-to-date or written will, then the law will decide how to distribute the deceased’s assets—this is known as intestate succession.

What is intestate succession? 

If a person dies without a valid will, they are said to have died intestate. In that case, the distribution of their property is determined by the intestacy laws of the relevant state or territory. These laws typically prioritise close family members, such as spouses, children, and parents, as beneficiaries.

Probate

Probate is the legal process that validates a will and confirms the appointment of an executor. The executor is responsible for administering the estate, including the distribution of the property according to the terms of the will. Probate is usually required when the deceased owned property solely in their name or when specific assets, such as real estate, need to be transferred to the beneficiaries.

Letters of administration 

In cases where the deceased did not leave a will, the court may grant letters of administration to a person who will act as the administrator of the estate. The administrator is responsible for managing and distributing the assets in accordance with the intestacy laws.

Distribution

Once the legal process, either through probate or letters of administration is completed, the property can be transferred to the beneficiaries. The transfer may involve changing the title ownership with the relevant land authority and ensuring any outstanding debts or taxes are settled.

It's important to note that laws regarding property inheritance can differ between states and territories in Australia. Also keep in mind that various things, such as specific provisions in a will or disputes among beneficiaries, can complicate the inheritance process. So, if you’re facing inheritance and are unsure, it might be a good idea to seek legal advice.

What happens if I inherit a mortgage?

If the property you or your loved one inherits is still being paid off, then the responsibility of paying off the mortgage goes to the beneficiary of the property. So, if the beneficiary hasn’t budgeted for these repayments or doesn’t have a sizable cash inheritance to help pay off the loan, then it could be problematic.

If you happen to inherit a loan where the mortgage is still ongoing, then it might be a good idea to make sure that you’re in a good financial situation. Sometimes, you might not find it advantageous to keep the property. 

If you want to keep the property, then it may be a good idea to check out alternative home loans so that you’re in a more advantageous position—for instance, if you inherited a lot of cash or have some of your own, an offset account could take the sting out of interest rates. If you’re not sure whether your loan works for you, then our comparison tools for refinancing your home loan might be a helpful way of deciding the right one for you.

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Last updated 30 October 2024 Important disclosures and comparison rate warning*

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