Can an Executor Distribute Individual Estate Assets Between Beneficiaries in NSW?
Where a Will leaves an estate equally to multiple beneficiaries, it does not necessarily mean every asset must be divided equally.
An executor may, in appropriate circumstances, allocate different assets to different beneficiaries while preserving their respective entitlements under the Will. This is known as an appropriation.
Under section 46 of the Trustee Act 1925 (NSW)(‘the ACT’), an executor has statutory power to appropriate estate assets in or towards satisfaction of a beneficiary’s entitlement.
Importantly, a valid appropriation of NSW property may qualify for concessional transfer duty of just $100 under section 63(1)(a)(iii) of the Act.
What is an appropriation of estate assets?
An appropriation occurs when an executor allocates a particular estate asset to a beneficiary in satisfaction of their entitlement under the Will.
For example, if two beneficiaries are each entitled to 50% of an estate comprising a $1 million property, $500,000 in shares and $500,000 cash, the executor could allocate the property to one beneficiary and the shares and cash to the other.
Provided each receives assets equivalent to their respective $1 million entitlement, the underlying interests under the Will remain unchanged.
What are the requirements for a valid appropriation?
An appropriation must satisfy the requirements of section 46 of the Act. Generally:
- The Will must not exclude or restrict the power of appropriation.
- The appropriation must satisfy an existing entitlement rather than create new entitlements.
- The allocation must be just and reasonable.
- Specific gifts under the Will must not be prejudiced.
- Appropriate beneficiary consent should be obtained where required.
- Assets must be properly valued, potentially through independent valuation.
- The estate must be sufficiently administered.
Importantly, an appropriation cannot ordinarily be used to allocate property worth more than a beneficiary’s entitlement simply because they agree to compensate another beneficiary.
Appropriation or variation of the Will?
The distinction is important, particularly for stamp duty purposes.
An appropriation changes which assets beneficiaries receive without changing their underlying entitlements.
By contrast, a variation or exchange occurs where beneficiaries alter their beneficial interests under the Will.
Simply obtaining agreement between beneficiaries does not automatically make a distribution a valid appropriation. The executor must genuinely exercise the statutory or testamentary power, supported by appropriate valuations, consideration of beneficiaries’ entitlements and proper documentation.
Does an appropriation attract stamp duty in NSW?
Under section 63(1)(a)(iii) of the Act, a valid appropriation of NSW land may qualify for concessional transfer duty of $100.
However, the concession is not automatic. The property must be transferred in or towards satisfaction of the recipient’s entitlement.
Where the property exceeds that entitlement, or beneficiaries instead vary their beneficial interests, ordinary ad valorem transfer duty may apply to the relevant excess interest under section 63(2), depending on the circumstances.
Relevant case law
In Bloore v Chief Commissioner of State Revenue [2020] NSWSC 502, the Supreme Court considered a transfer of property worth more than the beneficiary’s proportional entitlement to the residuary estate. The Court held that the transfer did not qualify as an appropriation for the purposes of section 63(1)(a)(iii).
In Ross v Sebek [2022] NSWSC 1300, the Court considered the appropriation of estate property under an express power in a Will. The decision highlights the importance of valuing the property and remaining estate assets at the date of appropriation.
Can an executor be compelled to appropriate an asset?
Section 46 gives an executor a power to appropriate estate assets, not an obligation to do so.
An executor may decline a proposed appropriation where valuations are disputed, the allocation would prejudice another beneficiary, the property exceeds the beneficiary’s entitlement, estate liabilities require the property to be sold, or legal, taxation or conflict-of-interest concerns arise.
Conclusion
Appropriation allows executors to distribute different estate assets to beneficiaries while preserving their underlying entitlements under a Will.
It can also provide significant stamp duty savings, with qualifying NSW property transfers potentially attracting duty of just $100.
However, the distinction between a valid appropriation and a variation of beneficial interests is critical. Executors should obtain legal advice to ensure any proposed appropriation is properly valued, documented and exercised in accordance with the Act.
The Law Office of Conrad Curry advises executors and beneficiaries on estate administration, asset distribution and disputes concerning executors’ powers.
DISCLAIMER
This article reflects the current law at the time of publication. Please note that cases may have been the subject to appeal or subsequent judicial consideration since the date of posting. The decisions referred to are summarised for general understanding only. It is intended for informational purposes only and does not constitute legal advice. For specific legal guidance in relation to your situation, please consult with a qualified legal professional.