If subsequent to your death the benefits are paid to a “non-tax dependant”, such as an adult child or the executor of your estate, there is a taxable component of 17% (inclusive of the medicare levy) which is payable on the distributed amount.

Example:

A 75-year-old client suffered a relapse of a cancerous condition which had been in remission. As the medical prognosis was for a limited further life expectancy, he didn’t wish to undergo any further treatment. His wife had predeceased him and he had one adult non-dependent son and two infant grandchildren. Before he died we prepared a new Will for him which provided for a discretionary testamentary trust with his son and grandchildren as the primary beneficiaries as to the capital (referred to as a bloodline trust). His superannuation nomination was changed so that his superannuation member benefits were paid to his estate. Accordingly his benefits formed part of the bloodline trust subsequent his death resulting in enhanced asset protection and taxation benefits for his son and grandchildren.

When he contacted us, his self-managed superannuation fund (SMSF) had assets which consisted of cash on deposit, public company shares and a commercial property which had been his business premises, but which was rented to the subsequent business owner.

As he was in pension mode regarding the payment of his member benefits, his stock broker was instructed to transfer the public company shares from the SMSF into his name by way of an off market transfer. He also took the cash out of the SMSF bank account and put it into his personal bank account. The property was then transferred (also in specie) into his own name. None of these transactions incurred any capital gains tax (CGT) or, in the case of the transfer of the property, any Victorian Stamp Duty.

At the commencement of the exercise, the superannuation fund balance totaled $3,253,295.

Within this balance, the taxable component of his benefits was $923,919, resulting in a Future Death Benefit Tax (FDBT) liability of $138,588 if the benefit were paid to the Estate in accordance with his latest Binding Death Benefit Nomination. The difference in the taxable component was because the building held by the SMSF used to be his business premises which some years before he had transferred into the SMSF.

Prior to his death a total of $1,932,991 was taken out to deplete the taxable components, therefore minimizing the future taxable portion of the fund to $23,520, which lowered the potential FDBT from $138,588 to $3,528 achieving a net tax saving of $135,060.

On his death, the assets formerly held as part of his member benefits by the SMSF (the public company shares and the commercial premises) together with the sale proceeds of his residence and other personally held assets all became assets of the discretionary testamentary trust without incurring either CGT or Victorian Government stamp duty. Any future CGT incurred by the Trust would be on the increase in value of the assets from the time when they were transferred into his name, with a 50% discount on any gain which could be split between the beneficiaries of the discretionary testamentary trust.

If you are seeking Estate Planning advice concerning assets inside superannuation (or otherwise), contact our team today.

The post When should you take your superannuation benefits out of the fund? appeared first on Tony Kelly Lawyer & Estate Planner.

A new case has expanded upon this decision. Re Rentis Pty Ltd [2023] QSC 252 focused on a deceased, Robert, who had appointed his wife and his brother as attorneys under a valid Enduring Power of Attorney. Importantly, his Enduring Power of Attorney gave his attorneys the express power to “renew any binding death benefit nomination” that he had made.

Robert lost decision-making capacity in 2020. His wife died in the following year.

Robert had previously made a BDBN allocating a portion of his superannuation death benefits to his wife. Following her death, Robert’s brother (acting as his attorney) updated Robert’s BDBN to divide his member death benefits between Robert’s children and Robert’s Estate.

The Court in Re Rentis considered whether such nomination was valid under the Attorney’s power to ‘renew’ a BDBN. On a strict interpretation of the word ‘renew’, such power could allow the attorney only to re-confirm an existing nomination in the same percentages, for example where a previous nomination had lapsed after three years.

The Court decided, however, that a narrow interpretation “would produce capricious, unreasonable and certainly inconvenient results”, and that such a power in an Enduring Power of Attorney should allow the Attorney to update the principal’s nomination when circumstances had changed (e.g. on the death of a beneficiary).

While such decision has not yet been tested in Victoria, we at Tony Kelly Lawyer & Estate Planner are pleased with this update. One issue of concern for us when assisting clients with their BDBNs is that many funds do not allow a ‘default’ or ‘two-tier’ nomination; that is, clients cannot dictate what should happen to their death benefits if their first choice of beneficiary predeceases them, and the client is unable to update their nomination due to incapacity or otherwise. Such a ‘default’ nomination is usually possible with a self-managed superannuation fund (SMSF) but our efforts to convince industry funds to adopt a two-tiered nomination form have so far been unfruitful.

Allowing a principal’s attorney to update the principal’s BDBN circumvents this issue, as the attorney can ensure a valid BDBN is still in place if the principal’s first choice of beneficiary has died and the principal no longer has capacity to update their own nomination. Above all, this decision underscores the need to have a robust and comprehensive Estate and Succession Plan in place that includes not only a Will and Binding Death Benefit Nomination but also Powers of Attorney.

If your Estate and Succession Plan does not include all of the above, we recommend that you contact us today to set up a no-obligation consultation.

The post Update – Superannuation Binding Death Benefit Nominations appeared first on Tony Kelly Lawyer & Estate Planner.

1. Who can receive my superannuation when I die?

Superannuation death benefits can only be paid to an individual if they are your dependant. For the purposes of the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’), a ‘dependant’ in relation to a person is:

• Their spouse;
• Their child (regardless of age); or
• A person with whom they have an ‘interdependency relationship’. Whether two people have an ‘interdependency relationship’ depends on the following factors:
  • They have a close personal relationship;
  • They live together;
  • One or each of them provides the other with financial support; and
  • One or each of them provides the other with domestic support and personal care.

Often, clients instruct us that they would like their sibling or parent to receive their superannuation when they die. Unless they have an ‘interdependency relationship’ with such family member, such relative cannot receive their superannuation directly. Clients can, however, make a nomination directing that their superannuation death benefits are paid to their Estate (i.e. to their Legal Personal Representative). Such death benefits will as a consequence of such nomination be distributed in accordance with the Deceased’s Will, with no restrictions as to who can receive them.

2. How do I “bequeath” my superannuation?

As indicated above, superannuation is held separately to your personal assets in a superannuation trust on behalf of the fund’s members, and so simply making a gift of your superannuation in your Will is not sufficient to deal with your death benefits. Instead, you must make a nomination directing the Trustee of your superannuation fund to pay your death benefits in accordance with your instructions.

The requirements for a nomination may vary according to the rules of the fund, but generally, in order to be binding, these nominations must be signed in the presence of two independent witnesses and submitted to the Trustee. If the Trustee does not receive your nomination before your death, it will not be valid and binding on the Trustee.

If your super fund permits, we recommend making your nomination non-lapsing, so that you do not have to renew it every three years.  We also recommend reading our blog post on the ability of your attorney to renew your nomination should you lose capacity to make decisions.

The nomination should be expressed in percentages to be paid to the eligible beneficiaries as explained above. For example, Naomi wishes to divide her superannuation between her children and her best friend Janet. Naomi makes a nomination directing her super fund to pay 33% of her death benefits to each of her two children. She also directs the fund to pay the remaining 34% to her Legal Personal Representative. Naomi then makes a Will, bequeathing any funds received from superannuation to Janet. On Naomi’s death, the fund will pay 34% of her death benefits to her Executor, who shall distribute the benefits in accordance with Naomi’s Will. This means that Janet will receive her share of Naomi’s superannuation death benefits, as per Naomi’s wishes, even though she is not a dependant of Naomi.

3. How are superannuation death benefits taxed?

We suggest obtaining specific financial advice as to the taxable and untaxed portions of your member balance to determine unequivocally how your death benefits will be taxed. As a general rule, however, death benefits paid to a tax dependant are not taxed. Please note that the definition of a tax dependant is slightly different to a SIS Act dependant, and includes only:

• A spouse or de facto partner
• A child under the age of eighteen
• Any person in an interdependency relationship with the Deceased

For benefits paid to adult children or your Legal Personal Representative (to be distributed under your Will to non-dependants), tax of 17% will apply to the taxable portion of the benefit. Any untaxed element will be taxed at 32% including Medicare levy.

Many clients are averse to paying such taxes on their superannuation (even though such payment will not occur until after they have died!). If you wish to minimise the taxation payable from your death benefits, you may consider nominating only tax dependants as beneficiaries, and providing for other family members through other means (such as your Will).

If you are of ‘preservation age’ (i.e. over 60), you may also begin withdrawing assets from your superannuation fund during your lifetime. Assets that have been removed from superannuation and that are in your personal name as at the date of your death will not incur the 17% tax, even if paid to a non-tax dependant from your Will. It is important to seek proper financial advice before deciding to draw down on your superannuation early for Estate Planning reasons.

It is also crucial that any such withdrawal requests are made in a timely fashion; if you die before the request is actioned by the fund, and the fund is aware of your death, the request may be treated as a payment of death benefits and taxed at 17%, rather than treated as a payment of a super benefit during your lifetime and not taxed at all.

4. What should I do next?

As a starting point, we recommend logging into your superannuation fund’s website (or otherwise contacting the fund) and confirming:

1. Whether you have a nomination in place;
2. Whether that nomination is binding; and
3. Whether the individuals you have nominated as beneficiaries are ‘dependants’ or your Legal Personal Representative.

If your answer to any of the above is ‘no’, we encourage you to contact us to discuss making a valid, effective Superannuation Binding Death Benefit Nomination. This document should be considered in tandem with your Will and wider Estate Plan. Our experienced and knowledgeable team can assist you in ensuring your superannuation death benefits (along with your other assets) are properly dealt with on your death.

The post Important considerations for your superannuation appeared first on Tony Kelly Lawyer & Estate Planner.

Advance Care Directive

An Advance Care Directive sets out your preferences for medical treatment, should you be unable to make those personally. There are two kinds of Advance Care Directives: instructional directives and values directives.

Instructional directives should expressly state which procedures you consent to or wish to refuse so that the document operates as if you were to give consent to, or refuse, such a treatment on the day. For example, an instructional directive could include express consent to the use of a ventilator in the circumstances of respiratory failure, or express refusal of CPR if there was a chance of there being significant impairment as a consequence of the medical event.

If you have lost decision-making capacity but have an instructional directive in place, a health practitioner must give effect to that directive, unless the excluded treatment is deemed by them not to be clinically appropriate.

Value directives do not specify which treatments you consent to or refuse; rather, they contain statements about preferences and values which will then provide guidance for any medical treatment decisions. An example of a suggested statement is ‘if I cannot recognise my children, I no longer wish to receive medical treatment’ or ‘I would like my treating health practitioners to take all reasonable steps to prolong my life’. Again, if you have lost decision-making capacity but have an appropriately worded directive in place, a health practitioner and your medical treatment decision maker must consider such values directive(s) when making their decisions.

Advance Care Directives are therefore important for ensuring that your wishes for your physical health are carried out.

Advance Statement for Mental Health

An Advance Statement for Mental Health is similar to an Advance Care Directive, but operates specifically to give instructions on treatment should you require compulsory hospitalisation under the Mental Health Act 2014. We recommend making an Advance Statement for Mental Health if a client has previously been hospitalised due to mental illness.

The directives may include:

• Treatments and strategies that you have found helpful in the past
• Conversely, treatments and strategies that you have not found to be helpful
• Preferences for or against certain types of treatment, such as particular drugs or electroconvulsive treatment

Whilst a psychiatrist must have regard to the treatment preferences expressed in the Advance Statement, it is also permissible to include matters which are “non-binding” but which may be useful for your treatment team, such as details of your general health, daily routine and dietary preferences.

Company Power of Attorney (also known as Corporate Power of Attorney)

A Company Power of Attorney appoints someone to act on behalf of a company (rather than one issued by its officers which only relates to actions which may be undertaken on their behalf personally). These Powers are usually created by company directors or board and take effect should the director(s) lose decision-making capacity.

It is also possible to make a Company Power of Attorney for a fixed term to cover situations such as where a director is overseas and needs someone to carry on the business in Australia. An attorney for a company can do anything that a company director can lawfully do, such as:

• Oversee the operations of day to day affairs
• Issue or cancel shares in the company
• Grant options over unissued shares in the company
• Distribute any of the company’s property (which includes dividends) among the members

As referred to in our previous post on Powers of Attorney, a Company Power of Attorney is a straightforward method of allowing an attorney to have control of an SMSF where the trustee is a company and to be able to make all decisions that the trustee company of the SMSF can make in such capacity subject to the provisions of the trust deed.

A Company Power of Attorney is also important for the execution of documents. Under Section 127 of the Corporations Act 2001, most companies can only execute a document with the signature of two directors or a director and a company secretary. If one director loses capacity and does not have a Power of Attorney in place, it becomes very difficult to carry out any business of the company. If spouses are co-directors of a company and, for example, the company owns real estate, the spouse with capacity would not be able to sell that property to fund the member’s retirement or care without a valid Power of Attorney granted by the company in place.

Accordingly a Company Power of Attorney resolves any such issues of directors or secretaries losing capacity. It has the effect of appointing an agent of the company (the attorney) who can execute contracts alone under Section 126 of the Corporations Act. This provides security for the equity holders should the directors be unable to oversee the management of its affairs.

If you do not have advance planning documents in place, it’s time to consider which of the above documents (and those covered in Part One) are right for you. Contact Tony today to tailor your Estate and Succession Plans to your needs.

The post Powers of Attorney and Related Documents Explained – Part 2 appeared first on Tony Kelly Lawyer & Estate Planner.

The proceeding involved a member of an SMSF who no longer had legal capacity, and the purported extension of the member’s expired BDBN by the holder of his enduring power of attorney signing a document referred to as an “extension of death benefit binding nomination form”.

The Court upheld this as valid based on the provisions in the member’s trust deed which expressly allowed a validly appointed attorney/s to exercise any power given to a member in the deed if the member had a legally recognized disability. Importantly, the Court also found the member’s financial enduring power of attorney did not contain restrictions on the attorney’s power, and ruled that the purpose of signing such an extension was in accordance with the member’s original wishes.

If you are a members of an SMSF, it is pertinent for you to consider the issues raised in this case and take a few simple steps to ensure the following:

• That there are provisions within your deed to avoid any costly and unnecessary complications by checking that the fund’s deed allows a member to make a “non-lapsing” BDBN so that it does not need to be renewed every three years and to prepare a BDBN accordingly;
• Consider whether you are comfortable granting your power of attorney the authority to make an amendment to your BDBN due to loss of mental capacity if circumstances were to change;
• If so ensuring that your power of attorney document provides an express clause in which the attorney’s power is addressed regarding your BDBN with any desired limitations, and
• Further, depending on circumstances and jurisdiction, it may also be necessary to provide a clause which expressly permits the attorney to defend any attempts by a party who objects to alteration of the terms of the BDBN by your attorney.

The post The Benefit of a Non-Lapsing Binding Death Benefit Nomination (BDBN) appeared first on Tony Kelly Lawyer & Estate Planner.