Testamentary options must not be exercised through contracts

Wills sometimes create testamentary options for beneficiaries, which could be exercised by the beneficiaries to acquire properties (usually at below market values). Ordinarily, this transaction only attracts $50.00 in stamp duty, but only if this is not carried out through a contract.

Under Section 63(1)(a) of the DUties Act 1997, a transfer of property from the deceased estate to a beneficiary in conformity with the trusts contained in the will only attracts stamp duty to the amount of $50.00.

However, Revenue Ruling DUT046 provides that the concession will not apply unless the exercise of the option is in strict compliance with the will.

Further, the High Court in O’Neill v O’Connell 72 CLR 114 (1945) 19 ALJ 227 held that the proper exercise of testamentary option does not involve the execution of a contract of sale – rather, the transaction ought only need to be performed through a bare exercise of option, without any written agreement to purchase or sell the property the subject of the option.

One should be extremely cautious when exercising testamentary options, failing which it may lead to expensive tax consequences.