Leaving super to an estate makes more tax sense, says expert
It is more tax effective to leave superannuation to an estate rather than a binding death benefit nomination to children, says an accounting expert.
.
Peter Johnson, founder of Advisers Digest, told attendees at the SMSF Adviser Technical Strategy Day in Brisbane last week that it is best to only leave a BDBN to children if an individual is genuinely concerned that someone will make a claim on their estate.
“Leaving [superannuation] to your spouse has no [tax] consequences, but what if they die? Who are you going to leave it to?” he asked.
“What if you have a new spouse? Your kids are going to get nothing. Leaving your super to your kids can be a disaster.”
Johnson continued that he often has clients who have made a BDBN to their children and not to their estate because they wanted to make sure there would be no claim on their estate.
However, he said the consequences of that decision meant the children would pay 17 per cent tax instead of 15 per cent.
“That’s an extra 2 per cent that is taxable income to the kids, and that almost always means they did a Division 293 on their superannuation, which they didn’t hold and it will mean they blow their health insurance rebate,” he said.
“And if they're getting childcare support, they lose that as well. Leave it to the estate. It's 15 per cent tax. It's no stress. The estate just puts it in its tax return, pays 15 per cent or could be less, depending on how much income the estate earns for the year, and then it comes out.”
Johnson continued that superannuation is not necessarily the most tax-effective place for building wealth.
“If you've got $500,000 in a company, and attached to that is a couple of $100,000 of franking credits, and you've got six grandkids, you could put all that money into testamentary trusts and landing each of those kids $20,000 a year,” he said.
“It’s way better than superannuation with some planning. For those who would be paying tax, you probably want to maximise what they have in superannuation and then live off tax-free pensions as much as they can. Then you want to make sure that the kids don't cop a massive tax bill.”
The SMSF Adviser Technical Strategy Day will move to Melbourne on Tuesday, 22 October and Sydney on Thursday, 24 October. Tickets are still available for these events.
Keeli Cambourne
October 22 2024
smsfadviser.com
October 22 2024
smsfadviser.com
More Articles
Complex rules of small business CGT concessions can present challenges
The complex rules around small business capital gains tax concessions can eliminate tax on a business sale and...
IGR predicts drawdowns will be major source of retirement income
Drawdowns from superannuation are projected to increase to almost six per cent of gross domestic product (GDP...
Retirees hardest hit by inflation
Retirees are being hit harder by rising prices than the general population, with the costs that dominate their...
The retirement gap we don’t talk about
Retirement confidence isn’t just about your nest egg, it’s about your plan. Retirement...
The three phases of retirement: Key decisions at every stage
Retirement starts long before your last day at work. Retirement starts long before your last day at...
Children as SMSF dependents very complex
The definition of children as dependants under superannuation law is not straightforward when dealing with...
Two Cautionary Tales About Resources Important to Anyone Using a Domain Name or Website
This warning is new, but the reason for forgetting to renew a domain name isn’t. 1. Not renewing...
Check out the smartest species on earth: Data from 200M BC to 2026
Check out the evolution of animal intelligence from the Jurassic Period (~200 million years ago) to 2026...
Heathmont Financial Services Pty Ltd (ABN 68 106 250 104) trading as Heathmont Financial Services is a Corporate Authorised Representative (No. 262098) of Knox Wealth Management Pty Ltd (ABN 74 630 256 227), Australian Financial Services Licence Number (AFSL) 513763.
Julian McGoldrick is an Authorised Representative (No. 262098) of Knox Wealth Management Pty Ltd AFSL 513763.