There is a saying that there are two certainties in life: death and taxes. While Australia doesn't have a death duty as such, certain income and capital transactions that occur as a consequence of a person's death may trigger a tax event - if not immediately, in the future.

Generally, if someone dies and they have investments and assets such as shares, there is no deemed disposal of those investments or assets. However, if they pass them to the beneficiary of the estate, then the tax profile of those investments will be inherited by the beneficiary.

While it may not always be possible to avoid these de facto death taxes, it may be possible to reduce or defer them depending on how you plan your estate.

The use of trusts - including a discretionary trust such as a testamentary trust or a family trust - is one way to ensure that your assets are left according to your wishes and with minimal tax consequences.

According to Mark Robinson, estate planning lawyer with Anderssen Lawyers, with careful planning it is possible to maximise the benefits to your loved ones.

"It is not about avoiding paying tax but minimising or deferring any unexpected tax liabilities," he says.

Capital Gains Tax

When it comes to inheriting assets, the biggest tax issue facing the beneficiary will be capital gains tax (CGT). Unless a person knows they are going to die and sells their assets prior to death and then gifts the proceeds, it can be hard for any beneficiary to totally avoid CGT.

The exception is the family home. Where a person inherits the principal place of residence of the deceased and disposes of it within two years of death, then it can be sold free of CGT.

The inheritance of assets other than the family home, such as shares, carry different rules depending on when the deceased acquired them.

If the asset held by the deceased was bought before September 20, 1985, then it is deemed to be pre-CGT.

According to Craig Holland, tax services partner with Deloitte, when the pre-CGT asset passes to a beneficiary it loses its pre-CGT status, however the beneficiary will obtain a market-value cost base determined at the time of death.

If it is an asset acquired after September 19, 1985, and so is post-CGT, the implications for a beneficiary can be worse, says Holland.

"In this case, the beneficiary inherits the deceased taxpayer's cost base, not a market-value cost base ... the beneficiary inherits an asset with an unrealised gain," he says.

Self-managed super fund

One of the big attractions of a self-managed superannuation fund (SMSF) is that members can hold income-earning assets such as property and shares and control their own investment and estate planning strategy.

Basically, if a member of a super fund died and property or other assets were transferred to a beneficiary, the tax outcome would be determined by whether the assets were transferred to a dependant or non-dependant. If the assets went to a dependant - someone who relied on the deceased for financial support - then no tax would be payable.

If the assets went to a non-dependant - such as an adult child - then there would be an immediate tax liability of up to 16.5 per cent of the property's value.

In some situations the SMSF may also incur a CGT liability in effecting a transfer of the assets to the beneficiary.

The national technical manager with Taxpayers Australia, Roger Timms, says the people exposed to tax are those who are sending their benefits to someone who is not a dependant.

"Where it becomes unfair is that someone who knows they are going to die could take the money out tax-free if they are at least 60 years of age and then gift the asset tax-free to the beneficiary, whereas those without that opportunity will have tax reduce the value of the estate," Timms says.

Testamentary trusts

A testamentary trust can come into existence under a person's will and comes into effect when that person dies.

Its main benefits are the protection of assets by not placing those assets in the hands of individual beneficiaries who may be exposed to risk.

Deloitte's Holland says a big advantage of putting assets into a testamentary trust is the assets are held in the name of the trust and not the beneficiary.

When income is generated within the trust and distributed from the trust to minors it can be done so without incurring the pecuniary rates of tax. Under a trust environment, the income from the trusts can be distributed in a tax-effective manner.

When the income is earned by minors outside a testamentary trust environment, the minor would incur a tax rate of 66 cents in the dollar on amounts between $416 and $1446, whereas if the assets were inside a testamentary trust the tax rate would be at the adult marginal rate, which could be a lot less.

Robinson adds that a testamentary trust gives the following opportunities: an incentive to invest their inheritance through a tax-effective structure that permits income and capital gains to be shared with dependants; the opportunity to save tax on the income and capital gains earned from the invested inheritance; and enhanced protection for the inherited assets in the event that any of the beneficiaries are involved in legal proceedings, like bankruptcy or divorce.

One of the certainties of life

It is one thing to have enough life insurance to meet the needs of loved ones left behind. Just imagine if a significant chunk of any life insurance pay-out had to be paid straight to the tax office.

Mark Robinson (pictured), estate planning lawyer with Anderssen Lawyers, says while it makes sense for most people to carry their life insurance within their super, there comes a point when they should look to separating the two for estate planning purposes.

"If a spouse dies and the remaining spouse has life insurance within their superannuation, which they were planning to leave to a non-dependent beneficiary, then perhaps it should be taken out of the superannuation," Robinson says.

"When superannuation is paid to a beneficiary it is treated as having concessional and non-concessional components which attract different rates of tax," he says. "Life insurance within your superannuation has a tax regime of its own and is taxed at 30 per cent rather than at 15 per cent, which means a good hunk could be paid in tax by certain beneficiaries."

Robinson says the death of a spouse would be the natural trigger point for reviewing an estate plan, particularly in blended families.

If you own the life insurance policy outside of your super fund, the proceeds can go into your estate or be apportioned to any nominated beneficiary and there is no risk of having to pay tax, unlike if it was within your superannuation.