Practitioners' lack of understanding of the tax implications of SMSF estate planning is resulting in beneficiaries paying unnecessary taxes, according to one mid-tier firm.
HLB Mann Judd head of wealth management Michael Hutton said there is still considerable confusion about the role of superannuation, particularly SMSFs, in estate planning.
“As a result, estates may not only end up paying unnecessary tax, but superannuation balances can also be distributed in a way a member didn’t want,” said Mr Hutton.
Mr Hutton said it is important practitioners are aware that while tax may be payable on distribution, this is not the case where the recipient is considered to be a death benefits dependent, such as a spouse, child under age 18, or a financial dependent.
“Whenever appropriate, superannuation balances should be paid to death benefits dependants to avoid unnecessary tax,” said Mr Hutton.
“Arrangements can also be made to pay an SMSF balance to a specific beneficiary as a pension without giving them access to capital.”
Whichever strategy the practitioner wants to implement for their SMSF client must be enabled through the trust deed, he stressed.
“Another SMSF benefit is that it can have up to four members – for example, parents and two children. Such SMSFs can be a good tool to facilitate intergenerational wealth transfer tax effectively,” said Mr Hutton.
“To achieve this, parents who do not need all of their superannuation can take a pension out of the SMSF and gift it to children, who can then, within contribution limits, re-contribute it into the fund in their own name.”
This kind of planning, Mr Hutton said, can help clients in a number of situations, such as allowing a family business property to remain in a family SMSF even after the death of a key member of the fund.
“Another advantage of an SMSF is that death benefits can be paid in-specie, meaning non-cash assets can be transferred direct to a beneficiary,” he said.
“This can be handy for unlisted or illiquid assets such as a property, or even listed assets such as shares. However, applicable stamp duty would be payable.”
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