There is a lot of misinformation and misconception about the interaction of superannuation within your estate plan and Wills.
The first point to realise is that the primary purpose of superannuation is to provide for benefits to be paid on your retirement, however caused. Governments provide taxation concessions for contributions to your superannuation and the earnings within your superannuation fund. These concessions continue to be received by you once you retire. When a member [in this case you] dies, the social policy is that the taxation benefits that a member would have had on retirement are available to your dependants. These dependants include your spouse and children who have a financial dependency on you. The taxation benefits include a tax advantaged and tax free income stream and tax free lump sum payments.
Beneficiaries who are non-dependants will be taxed on the benefit that they receive. This tax is at the rate of 15% on income and capital that has been previously taxed and 30% on untaxed income and capital. There is a threshold before tax applies but for the purposes of this general information, is not relevant. The untaxed component, in an estate planning context, usually refers to life insurance. The imperative is to not pay 30% tax on that component.
Superannuation monies are managed by Trustees and regulated by both the trust deeds, which set up the fund, as well as statutes that regulate superannuation. In simple terms the trustees of a superannuation fund are the persons who, in addition to the day to day management of the superannuation fund, have the power to exercise discretions in dealing with a deceased member’s entitlement.
When exercising these discretions, the Trustee will need to know the deceased’s member’s circumstances and details of all persons who are or could be dependants and/or beneficiaries.
The trustee will then decide to consider the circumstances of all of these persons. In many cases this is not what a member would have preferred. Therefore, processes that control or limit the exercise of discretions by trustees were introduced using binding and non-binding beneficiary nominations. In our view there are better ways to deal with “looking after” loved ones, than relying on a superannuation fund trustee.
Our recommendation is to have an estate plan that postpones any decision making until the circumstances of your dependants can be determined. This means post death and by your executor. Your executor, with advice, should be empowered to be able to either apply for, or provide, your dependants with tax-advantaged pensions [usually tax free] tax free capital payments or other income streams that will allow for school and university fees, maintenance and support, capital payments for mortgage payouts and many other items. All of which take full advantage of the concessions that are available and at the time they are needed.
We are certain of the effectiveness of our strategy, process and documentation because our legal practice director designed these in conjunction with the principal solicitor of one of Australia’s leading and largest superfund trustee company and life insurance office. It has stood the test of time.
To ask us how or seeking further information please phone (08) 9368 1337 or Email: email@example.com
Willcraft Estate Planning Pty Ltd
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Legal Practice Director Martin de Haas
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