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Summary

Recent changes to superannuation have meant that it is probable large sums will be held in many superannuation funds at the time of death of a fund member, with the prospect of significant tax being paid as benefits pass to non-dependent beneficiaries.

This “death duty” can be avoided with careful planning.

The change

Previously, there were limits on the amount of superannuation contributions, strict requirements to “cash out” benefits in retirement, and adverse tax consequences if benefits were received by a “working retiree”

All that has changed. Generous contribution allowances in recent years mean that amounts held in superannuation funds are now measured in billions of dollars. Also, from 1 July 2007 persons over 60 can withdraw superannuation benefits tax free before death. Read more

In the past, the classic way in which families would minimise risk exposure would be for the low-risk spouse to own family assets - particularly the family home. The theory has been that the high-risk spouse (usually the higher income earner) would be exposed to trading or professional liabilities with personal and investment assets being held by the spouse or perhaps a separate entity such as a company or trust. Read more

Many family discretionary trusts that were established in the 70s or early 80s provided for fixed vesting dates. That is to say, a fixed date by which the trust should come to an end and all trust assets distributed. In older deeds it was quite common for the term of the trust to continue for only 30 years or thereabouts meaning that a lot of family trust deeds in use today are nearing their vesting date. Once a trust vests then, amongst other things, revenue implications in terms of stamp duty and capital gains tax arise as assets are sold and funds distributed to beneficiaries or distributed in specie to beneficiaries. Read more

The recent Weekend Australian article entitled “Don’t Sacrifice a House for Super” analysed the various pros and cons of selling an investment property to take advantage of the $1 million after-tax (undeducted) contributions which can be made to superannuation in a one-off special concession before 30 June this year. This concession was granted by the Federal Government in the last Federal Budget.

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