Death Benefit Issues & Estate Planning with SMSF's

Possibly one of the most complex and forgotten about Self Managed Super issues. That is, planning for the death of members and what happens to the money at this time. People typcially spend their working lives raising a family and acquiring assets for retirement. The trick is to acquire enough assets to support your lifestyle in retirement!

Estate Planning ensures that funds are delivered (if you have any left over) to those who you wish to receive them (on your death), in the most uncomplicated and tax effective manner possible. There are many issues to consider outside the scope of this website page. However, please see some questions below that may provoke some action in your planning:

Do you have a Binding Death Benefit Nomination (BDBN) form in place?

Did you know that superannuation is specifically excluded from the pool of assets and other interests that can be disposed of by a person via their will? A BDBN form is a record of your wishes for the trustee to follow on your passing. This record is binding on the trustee. There are a few issues that you will need direction on to get this correct, but it will cause everyone less stress down the track  if you do. The most famous case regarding this issue is Katz v Grossman [2005] NSWSC 934. 
At the time of his death, Mr Katz and his daughter were the trustees of Mr Katz's SMSF (also a good reason to have a corporate trustee v individual trustees). Mr Katz's daughter appointed her husband as co trustee on her Dad's death and as there was no binding death benefit nomination form about how Mr Katz would like his monies distributed, his daughter took all the money (at the exclusion of her brother) and the court held this to be legal! Don't let this happen to your family.

Do you have a will?    

We are not a legal firm and strongly suggest you attend to this matter, in conjunction with your binding death benefit nomination form. Families can be damaged over monetary disputes. For the sake of everyone involved, attend to the issue and review it regularly.

When I die, what happens to my superannuation money? read my blog post here "When I die, what happens to my Super?"

This is a good and common question and depends on a variety of factors. There are a number of options available to how a deceased person's entitlements can be distributed and depends on factors such as:
  • the mode of the deceased at time of death (pension or accumulation)
  • the age of dependants
  • the wishes of the member, in terms of estate planning
  • the size of the benefit and likely tax implications
  • multiple families / wants (ie.children from a former marriage, children from a current marriage etc)
  • any special requirements of beneficiaries that may be raised on death (ie. financial commitments

We suggest you seek professional advice on this.



Tax on Super Death Benefit Components 2010 – 2011

 

Age of Deceased

Superannuation Death Benefit

Age of Recipient

Tax treatment

Any Age

Lump Sum

Any age

If paid to tax “dependent” - Tax free (not assessable, not exempt). 
If paid to non-tax “dependent” – tax free portion is tax free; taxed element is taxed at 16.5%; and un-taxed element is taxed at maximum rate of 31.5%.

Aged 60 and above

Income Stream (can only be paid to “dependent” for tax purposes)

Any age

Taxable component – taxed element in the fund is tax free (not assessable, not exempt).
Taxable component – un-taxed element is subject to marginal tax rates and the person is entitled to a 10% rebate on this component.

Below age 60

Income Stream (can only be paid to “dependent” for tax purposes)

Above age 60

Taxable component – taxed element in the fund is tax free (not assessable, not exempt).
Taxable component – un-taxed element is subject to marginal tax rates and the person is entitled to a 10% rebate on this component.

 

 

Below age 60

Taxable component – taxed element is subject to marginal tax rates and the person is entitled to a 15% rebate on this component.
Taxable component – un-taxed element is subject to marginal tax rates.

Copyright Self Managed Super Fund Accountants © | Disclaimer | Site Map