A deed of family arrangement lets beneficiaries of a deceased estate redirect or vary their entitlements after probate has been granted — without unwinding the will or triggering a full court proceeding. Used correctly, the deed preserves capital gains tax concessions under s.128-15 of the Income Tax Assessment Act 1997 (Cth) (ITAA97), avoids stamp duty in most states, and can neutralise a potential family provision claim before it becomes litigation. Miss the timing or omit a required party, and the same document can trigger unexpected tax and duty events.
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What a deed of family arrangement actually does
A deed of family arrangement is a binding contract between beneficiaries — and, in most states, the executor — that reallocates estate assets differently from the will or intestacy entitlements. The executor holds assets on bare trust for beneficiaries once probate is granted; the deed effectively redirects that beneficial interest before final distribution.
The deed is not a variation of the will. The will stands as probated. What changes is who receives which assets, and in what proportions, as between the beneficiaries themselves. That distinction matters enormously for CGT and duty purposes, as explained below.
The 12-month window and why it matters for CGT
Under s.128-15 of the ITAA97, a beneficiary who acquires a CGT asset from a deceased estate takes the asset at the deceased's cost base (or at market value if the asset was a pre-CGT asset or a dwelling that attracted the main residence exemption). This is the market value substitution rule for deceased estates: the beneficiary steps into the shoes of the estate for CGT purposes.
Timing matters for two reasons. First, s.118-195 of the ITAA97 provides a CGT exemption for the sale of a deceased's main residence provided the dwelling is sold within two years of death (a period the ATO can extend) and the property passed to a beneficiary. Second, for an asset to be treated as having "passed" to a beneficiary under the statutory framework rather than as a separate disposal, the deed must generally be entered into before the legal personal representative completes administration of the estate — and, where the administration has already been completed, the ATO requires the beneficiary to demonstrate that a court would likely grant leave to bring (or extend) a family provision application at the time the deed was executed.
Where a deed meets those conditions, the redirected assets are treated as having passed to the substituted beneficiary for CGT purposes, preserving the cost base treatment under s.128-15. Where the deed is entered into after administration is complete and cannot satisfy those conditions, the ATO may instead treat the arrangement as a disposal by the original beneficiary to the other party, potentially crystallising a CGT event (CGT event A1 under s.104-10). Executing the deed early — and certainly before the legal personal representative finalises distribution — is therefore not just good practice; it determines the applicable tax treatment.
Stamp duty exemptions across Australian states
Stamp duty treatment varies by state and territory. In all jurisdictions, the key question is whether the deed effects a change in beneficial ownership that amounts to a dutiable transaction.
New South Wales. Under s.63 of the Duties Act 1997 (NSW), transfers from a legal personal representative to a beneficiary attract a concessional duty rate where the transfer is in conformity with the will or intestacy entitlements. A deed of family arrangement that varies those entitlements — redirecting property to a person who would not have received it under the will — falls outside s.63 and is assessable for standard transfer duty on any consideration. Revenue NSW requires a copy of the deed on lodgement for assessment.
Victoria. Under the Duties Act 2000 (Vic), a transfer of dutiable property by the legal personal representative to a beneficiary is exempt from duty under section 42 to the extent the transfer conforms with the beneficiary's entitlement under the will or intestacy. Where a deed of family arrangement reallocates property beyond a beneficiary's original entitlement, duty may be assessed on the excess. Confirm the duty position with the State Revenue Office before execution, as the exemption's scope depends on the extent to which each transfer mirrors the underlying testamentary entitlement.
Queensland. Under the Duties Act 2001 (Qld), transfers to a beneficiary from an estate are exempt. A deed that rearranges entitlements between existing beneficiaries can qualify, but the arrangement must not introduce outside parties who had no prior claim.
Western Australia. The Duties Act 2008 (WA) exempts transfers to beneficiaries of a deceased estate. The Office of State Revenue requires the deed to be lodged for assessment with evidence of each party's beneficiary status.
South Australia, Tasmania, ACT and NT. Each jurisdiction has its own duty framework, but the general principle — rearrangements between genuine beneficiaries, without consideration passing outside the estate, attract exemption or concessional duty — applies broadly. Confirm with the relevant state revenue office before execution, as duty officers retain discretion over novel arrangements.
The practical rule: if money changes hands between a beneficiary and an outside party, duty is likely payable on the consideration. Keep the arrangement within the beneficiary class where possible.
Who must be a party to the deed
Every person who holds a beneficial interest in the estate — or whose interest could be affected by the rearrangement — must execute the deed. That includes all beneficiaries under the will (even those whose bequests are unaffected), the executor or administrator in their capacity as legal personal representative, any person who has signalled intention to bring a family provision claim, and trustees of any testamentary trust if assets subject to the deed pass into it.
Minor beneficiaries and persons under legal disability cannot execute in their own right. Supreme Court approval is required before their interests can be varied — the single most common reason deeds are delayed until after administration of the estate is complete, with adverse CGT consequences. Where a beneficiary has died since the testator, that beneficiary's executor must execute on their estate's behalf.
Interaction with the Succession Act 2006 (NSW) and Pt IV of the Administration and Probate Act 1958 (Vic)
Family provision claims are the single most common reason practitioners reach for a deed of family arrangement. Under Part 3.2 of the Succession Act 2006 (NSW), an eligible person may apply to the Supreme Court for a family provision order — a compulsory redistribution of the estate — within 12 months of the date of death (s.58(2)). The court can extend time but rarely does so without good reason.
A deed of family arrangement negotiated before a family provision claim is filed can resolve the underlying dispute without litigation. Once all eligible persons — those who could potentially bring a claim, not just those who have filed — execute the deed and release their claims under it, the estate is protected from future family provision applications by those parties.
In Victoria, Pt IV of the Administration and Probate Act 1958 (Vic) operates similarly, allowing eligible applicants (broadly: spouses, domestic partners, children, stepchildren and some others in a dependent relationship with the deceased) to apply within six months of the grant of probate or letters of administration. A deed entered into by all potential applicants, with appropriate releases, forecloses those claims.
The deed must include a properly drafted release clause. A vague acknowledgment that parties "accept the arrangements" is insufficient; the release must specifically identify the right being relinquished — including the right to bring or continue a family provision application — and each releasing party must receive independent legal advice before signing.
CGT event K3 and s.100A: what practitioners often miss
Section 100A of the Income Tax Assessment Act 1936 (Cth) (ITAA36) — not the ITAA97 — is the anti-avoidance provision targeting trust distributions that benefit a low-tax beneficiary while economic benefit flows elsewhere. In deceased estate contexts, s.100A can apply where a beneficiary's entitlement is redirected under a deed and the redirecting beneficiary receives a non-arm's-length benefit in return. The ATO's guidance in TR 2022/4 confirms the section applies to testamentary trusts as well as inter vivos trusts. A deed that simply rearranges inheritance between family members — without side payments or tax-driven motive — generally falls outside s.100A, but the commercial rationale should be documented.
CGT event K3 under s.104-215 of the ITAA97 arises when an asset of the deceased passes to a beneficiary that is a tax-advantaged entity — one whose income is exempt under Division 50 of the ITAA97, such as a charity. Where K3 applies, any capital gain is included in the deceased's date-of-death return rather than the beneficiary's. For most family beneficiaries, K3 is not engaged, and the general rule under s.128-15 governs. The timing of the executor's assent to distribution, relative to the deed, determines which provisions apply to the transaction.
For the estate distribution agreement — which records the final allocation of assets — the deed of family arrangement should be executed first, so the distribution agreement reflects the varied entitlements rather than the will's original terms.
Drafting the deed: key clauses
A well-drafted deed of family arrangement includes:
Recitals. Identify the testator, date of death, grant of probate (with court reference and date), the will's relevant provisions, and each party's current entitlement under the will or intestacy.
Operative clause. State precisely what each party agrees to receive in lieu of their entitlement, and what the executor is authorised to distribute accordingly.
Release of family provision claims. Each eligible person must release all rights under the relevant state's family provision legislation, named specifically. A vague general release does not suffice.
Acknowledgment of independent legal advice. Each party confirms they have received, or waived the right to receive, independent legal advice. Courts have set aside deeds where parties signed without understanding what they were releasing — this clause provides a record.
Duty and tax acknowledgment. Confirm the stamp duty exemption relied upon and that no consideration is passing outside the estate.
Governing law. Specify the state whose laws govern — generally the state where the estate is being administered.
Common pitfalls
Executing too late. The deed must generally be entered into before the legal personal representative completes administration of the estate to preserve the favourable CGT treatment under the ITAA97. Probate in NSW takes four to six months on average from application; in Victoria, six to twelve weeks. Once administration is finalised and assets distributed, executing the deed becomes significantly more difficult from a tax perspective. Factor that timeline in from the outset.
Missing an eligible family provision claimant. A deed signed by all named beneficiaries but not by an estranged child or former spouse who could bring a claim offers no protection against that claim. Map out all potential applicants before execution.
Omitting minor beneficiaries. If a child or grandchild is a beneficiary, court approval is required. Apply early.
Consideration flowing outside the estate. A beneficiary who agrees to redirect their entitlement in return for a payment from another beneficiary's own funds — rather than from estate assets — may trigger both a CGT event (event A1) and a dutiable transaction. Structure the arrangement so consideration, if any, flows from within the estate.
Failing to notify the ATO. Where the deed affects a testamentary trust and the trustees have an ongoing reporting obligation, the varied entitlements must be reported correctly in the trust tax return for the income year of distribution.
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This article is general information, not legal advice — see our accuracy & editorial policy. Confirm the cited law is current before relying on it.