THIS simple oversight slashed this daughter’s inheritance—could it happen to your family?

Sometimes the costliest mistakes begin with the best of intentions. One Australian family thought they had found a practical solution to help ageing parents secure a home in later life. Instead, the oversight left their daughter with a crushing $200,000 tax bill that stripped away most of her inheritance.

What unfolded was not just a financial misstep but a cautionary tale about the hidden dangers of informal family arrangements.

How it all began

The situation began when an elderly couple in New South Wales wanted to relocate but keep their long-time family home for relatives still living there. Because of their age, banks refused to lend them money for a new property. The solution seemed simple enough—place the new house in their daughter’s name so she could secure the mortgage.

For more than 30 years, the arrangement appeared to work perfectly. The parents lived in the property, paid all loan repayments, rates, and maintenance, and even invested heavily in improvements. When they sold their old family home, they used the proceeds to clear the mortgage on the new one.

In their wills, both parents divided the estate equally among their four children. Each expected to receive around $250,000 when the property was sold.

The devastating tax shock

But when both parents passed away, the Australian Taxation Office (ATO) dealt the family a devastating blow.

The ATO ruled that the daughter was the legal owner of the property because no trust documentation existed. Despite the family’s clear understanding of the arrangement, the tax office refused to accept she had held it on trust for her parents.

The consequences were severe. The property had been purchased before 20 August 1991, which meant harsher capital gains tax rules applied. Those rules prevented holding costs—such as interest, rates, and insurance—from being added to the property’s cost base. The improvements funded by the parents also could not be included.

The result was a taxable capital gain of $425,000 on the $1 million sale. The daughter was left with a tax bill of nearly $200,000. From what should have been a $250,000 inheritance share, she received just $50,250.

The risks of verbal agreements

This case revealed how vulnerable families can be when relying on verbal agreements. It also exposed the cruel effect of pre-1991 capital gains tax rules, which still ensnare many Australians today.

If the property had been held under a formal trust, the parents could have claimed the main residence exemption, potentially eliminating the tax bill. A trust would also have allowed capital gains to be shared across beneficiaries, reducing liability further.

Warning signs are easy to miss but often present. Risk factors include having property in one name while others cover the costs, relying on verbal agreements about inheritance, or involving pre-1991 properties in family plans.

The lesson is clear—document everything. Families should seek professional legal and tax advice, review existing arrangements, and consider formal trust structures where significant assets are involved.

How the loss could have been prevented

The tragedy is that the daughter’s loss could have been prevented with straightforward legal planning. What seemed like an act of support and common sense turned into a devastating financial penalty.

The family’s experience proved one of the hardest truths about estate planning—good intentions mean nothing without documentation.

This family’s experience showed just how devastating the consequences of an informal arrangement can be when critical documents are missing.

But inheritance mistakes don’t only come from tax traps—sometimes, they happen because a will isn’t updated when life circumstances change.

To see how small oversights in estate planning can create big problems, here’s another story worth reading.

Read more: When life changes, your will should too: The nine critical moments that could cost your family dearly

Could your family arrangements withstand the ATO’s scrutiny, or would they collapse under the same costly mistake?