The challenge is to how to try to ensure that your beneficiaries pay as little tax as possible on whatever remains of your retirement nest egg after your death.
An unquestionable reality is that the balances that some people are gathering in superannuation - I have heard of SMSFs with asset values in the tens of millions of dollars - cannot simply be spent in their lifetimes. And hundreds of thousands of members with much more modest balances will one day be approaching the end of their lives with some superannuation savings remaining.
Here is the bottom-line. All inherited super benefits flowing are tax-free if paid to your spouse, children under 18, or other financial dependants. But the so-called taxable component of a superannuation death benefit - which includes "concessional" pre-tax contributions and fund earnings - will be taxed at 16.5% before being paid to non-dependants of deceased members.
This means that most people's beneficiaries, their financially independent adult children, are vulnerable to being caught in this tax net.
However, personal after-tax contributions - no tax deduction has been claimed when contributing the amounts - are among the components of a superannuation death benefit that are tax-free to all beneficiaries, even if non-dependants.
Stuart Jones, a superannuation specialist with Thomson's electronic newsletter Super News Alert, believes that financial planners and tax professionals will increasingly focus on ways to legitimately minimise tax on super death benefits. Jones says the next issue of Australian Financial Planning Handbook, published by Thomson in the next couple of months, will examine the latest and developing strategies being suggested by advisers to older super fund members and their families. There are some exciting opportunities for the well-informed.
And in a recent speech on SMSF compliance, deputy tax commissioner Ian Read said that tax-office intelligence suggested that tax-planning involving intergenerational wealth transfers and superannuation was becoming a primary issue.
Estate-planning and super is a matter that fund members cannot afford to ignore. Smart Investing
By Robin Bowerman
19th July 2007
18th-July-2007 | 