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.

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.