Your Will can't control your Superannuation - so stop trying
Author:
Rockliffs Solicitors and IP Lawyers
Publish Date: September 21, 2008
Three years ago, there was on average, $450,000 in each Self Managed Super Fund. Today, it is $805,000. At that rate, your home will be your second biggest asset (that is, if you live outside of
It is advisable to leave your Superannuation in your SMSF’s at retirement. It is tax free. This also lets your children use your SMFS as a tax free savings account for themselves. That makes sense and many of our clients are taking advantage of that.
What worries me is “what happens when you die?” Does your Will deal with your Superannuation? Your Will only covers assets that you own. Many of our assets are not owned by us. They are “controlled” by us but not “owned” by us. Asset Protection strategies and the antiquated tax system in
For example, Family Trusts, Joint Tenancy Assets and Superannuation don’t form part of your estate. Therefore, it doesn’t matter what you do because your Will can’t control assets outside of your estate.
The three problems I have are: Your Super goes to the wrong person; your Super is taxed at death and you can’t get the super in a timely manner.
1. Your Super goes to the wrong person
The person who controls your Superannuation is the Trustee. If the Trustee is your eldest son, he will no doubt want your Superannuation to go to him alone. He will probably get his way. This may make your other children unhappy, especially if they have been using your Super as their own savings account.
Let us assume you have done a “Will in your Self Managed Super Fund”. This stops your son from getting 100% of your Super and fixes the first problem. What now is the tax rate for your children? Good old Peter Costello gave our Super back to us on retirement without any tax – no capital gains tax and no income tax (yet we still threw him out of government). This is why no one is in a rush to cash in their Superannuation at retirement and why children are using your Super as a tax free bank (better and cheaper than a Swiss Bank account).
2. Tax on dead people’s Superannuation
However, now you die with a ton of money in your Super. This money is often not tax free. In fact, it will only be tax free if the money goes to your Spouse, children under 18 and people you maintain (this can include a mistress). Given that your wife may be dead, your children are probably in their late 50’s and you are not allowed to have a mistress, most of us are looking at suffering on our super when we die.
This non-dependency tax rate is 16.5%. You can avoid this tax through a Superannuation Testamentary Trust. Your financial planner also has other strategies. However, you have to do this before you die.
3. Get Super out quickly when you die
Money coming out at death is a “super death benefit”. If you delay, you can turn that into a “super member benefit”. The death benefits get the better tax treatment”.
The lump sum needs to be paid out six months after death or three months after the Grant of Probate (whichever is the later). Your suffer a penalty if you jig outside of these times.
If you do it within time, then there is no tax to mum, children under 18 and people you maintain (dependants). If you go outside the period, the payment to mum and these dependants moves from zero to 16.5%. It was free one month and then it was 16.5%. It is very unfair and cruel. Again, your financial planner may be able to wash out the mistake with pensions. However, it is better not to have made the mistake in the first place.
Reproduced with the permission of Law Central: www.lawcentral.com.au
For further information or assistance please contact Rockliffs on 02 9299 4912 or email us at lawyers@rockliffs.com.au