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
Most Reliable Car Brands in 2026
Check out which car brands are the most likely to stay on the road and not cost you a fortune to...
Super versus trusts: What is the best option with Div 296?
Super used to be clearly the “best” option due to low tax rates but the increasing complexity of things...
AI use needed with proper safeguards
The SMSF Association has suggested practitioners servicing the sector must equip themselves with more than...
Thinking of establishing an SMSF? Don’t skip reading the rules
As the establishment of new SMSFs continues to rise, the ATO is reminding potential trustees to ensure they...
Are downsizer contributions losing steam?
Tax Office data shows fewer people used its super scheme in 2024-25 . Introduced in 2018, the home...
Investment and economic outlook, February 2026
latest forecasts for investment returns and region-by-region economic outlook . Australia A rate...
Coercive control in SMSF becoming a hot issue
AFCA is anticipating there will be more focus on coercive control and elder abuse going...
What to look for when choosing a financial adviser
Here's how to find a financial adviser who can provide the right support for you . We believe...
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.