Fuss over new inheritance fees is much ado about nothing

If you found yourself seriously panicked about the future of your inheritance this week, I’m not surprised. On Monday, the Victorian government’s changes to probate fees for estates in Victoria came into effect and, to many, they sounded utterly terrifying.

For those unfamiliar with the process, probate relates to court fees that are paid to have a will validated and approved, so a deceased person’s estate can be distributed. More often than not, this task is handled by the executor of the will, or their legal representative.

While no one likes part of their inheritance going to government coffers, in reality, it’s a tiny amount.Credit: Simon Letch

But something I learnt early on in my career is that when it comes to finances, numbers can work both in wonderful and worrisome ways, depending on how they’re presented.

Let me give you an example: per this week’s changes, the probate fees for estates worth between $250,000 and $500,000 in Victoria have increased by a whopping 645 per cent. Sounds scary, right? By any measure, that’s a huge jump.

Now, let me put the same figures another way: In real dollar terms, this 645 per cent increase takes the previous probate fee of $69 up to $514.

Don’t get me wrong, $514 is a lot of money. But even if your inheritance comes in at the lowest point in this bracket, the increased fee will still represent only 0.2 per cent of the estate. And if the total value of the estate is $500,000, that becomes even lower – dropping to just 0.1 per cent.

Having a system that can allow a process to run smoothly ... can make an already traumatic experience slightly less difficult.

Here’s another example. The second-highest fee rise is to estates worth $7 million and up, where fees increased by 625 per cent. Again, without context, those kinds of numbers are enough to make your jaw drop.

But digging into it, what this really means is that the fee has increased from $2319 to $16,803. Again, if your inheritance comes in at the lowest point of this bracket, that’s just 0.24 per cent of what you and any other beneficiaries of the estate stand to receive.

While the fees are a jump, when you break down 625 per cent and see it as 0.24 per cent, it suddenly loses a lot of power. It’s also worth noting that these new fees are in line with other states, including NSW and South Australia.

Another interesting aspect of the changes, and what seems to have been lost in much of the confusion and fearmongering, is how much Victorians are actually inheriting.

According to the Productivity Commission, the average Australian inheritance now sits at about $125,000. So what are the fees on estates of $125,000? Nothing. Unlike a fortnight ago, when probate fees would have set you back $69, there are now no fees for estates worth $250,000 or less.

State government data shows about 90 per cent of probated estates in Victoria are worth $2 million or less. Meaning that, at the very most under the new changes, probate fees will leave you $2400 lighter in the pocket.

Of course, most estates are divided up among siblings, grandchildren and other loved ones, which means the figure you inherit may be only a portion of someone’s overall estate. But even if the estate itself were to be $500,000 and split among four siblings, the probate fee would take away just $128.50 from your individual share, still leaving you with an inheritance of $124,871.50.

The state government said the increase in fees was needed to cover costs associated with handling estates that were complex and where estates were challenged in the Supreme Court. Where hundreds of thousands, or even millions, of dollars are involved, it’s easy to believe that the settling of many estates could become complex, even when there are wills in place.

The Supreme Court has seen its biggest year-on-year increase in probate applications.Credit: Fairfax Media

There are other reasons higher fees are needed, too, which the Supreme Court points to in its most recent annual review. In 2021-22, the court noted there were 24,452 probate applications filed.

Just one year later, the number of applications increased to 26,660. Per the court’s 2022-23 annual report, “This is the largest single year-on-year increase the Probate Office has experienced, likely attributable to the higher-than-usual mortality rates recently and an ageing population.”

Across the next 25 years, Australia’s population and our personal wealth are set to undergo dramatic change. By 2051, the Productivity Commission estimates there will be 7.1 million Australians aged over 65, roughly 25 per cent of the population.

That compares with just 2.5 million now. In Victoria alone, the Australian Bureau of Statistics estimates the state’s percentage of older people, predominantly Baby Boomers, which rose from 13.1 per cent of the state’s population in 2022 to 19.1 per cent in 2021, will reach 27.3 per cent in 2051.

Over the same period, the commission estimates Boomers alone will leave behind $224 billion in inheritances each year – a figure that is more than double what it was in 2002. It’s estimated that over the past 20 years alone, almost $1.4 trillion has been passed on to younger Australians via inheritances.

Losing a loved one is not something I’d wish on anyone. And, of course, no amount of money can replace someone you care deeply about. But having a system that allows a process to run smoothly at what will likely be one of the toughest periods of your life can make an already traumatic experience slightly less difficult.

It’s also an undeniable reality that money gives people greater financial freedom and allows us to make choices we might not have been able to make otherwise. It’s not the answer to every problem, but it can certainly help with many of them.

And though fee increases always sound bad on paper, when you break it down and realise it is, at most, a quarter of a single percentage point, it becomes hard to understand what all the fuss is about.

Victoria Devine is an award-winning retired financial adviser, bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also founder and co-director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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