Kieran Hoare, director at Merthyr Law, said while speaking at the Institute of Public Accountants conference last week that a super deed with the option of including people that can instigate the necessary procedures can help lessen the impact of death benefit tax when a member passes.
“In the situation, where say Dad has got a week left to live and the family is busy going around talking to accountants and lawyers and signing all this paperwork, dealing with chair registries – it’s not the ideal way to see that off. It’s better if that can all happen without too much attention from the kids,” he said.
“You can design a super deed with the option where you can put people in. For example, the attorney, or the kids can notify the recipient such as the accountant or the lawyer, or whoever it is, by phone or email, and the deed is structured that it’s deemed that from the point that notice is given the assets of the super fund are held on bare trust for the member, rather than on the trust of the super fund.”
Death benefits tax is an issue that is often high on the list of concerns for SMSF members, Hoare said.
“If you’ve got a couple who are married and 60, death benefits tax shouldn’t be that high on their agenda, because usually they don’t both die at the same time. Taking property out of super for death benefits tax isn’t as much of a live issue,” he said.
“But for someone who’s in their late 80s or 90s, they’re widowed, it looks like it’s a lot more of a good reason to actually be transferring assets out because death benefits tax can be running into the hundreds of thousands of dollars.”
He continued that the proposed Division 296 tax is also bringing forward the conservations about death benefit tax and clients are realising that assets, like property, have to come out of super at some time – whether it is before they die or shortly after.
“It makes a lot of sense doing that planning and often it doesn’t necessarily come from the member. It might come from the children,” he said.
Hoare warned that trying to avoid a hefty death benefit tax should not be done by writing undated cheques, which is considered by the ATO as fraud, and does not work for several reasons, especially if there are assets in the fund.
“[Those assets] are usually not just cash anyway, and cheques are redundant in around 12 months’ time. A resolution by itself does not do a lot either, nor do off-market transfers,” he said.
“You may then have issues with the ATO about when the transfer actually happened. Was it at registration, or was it when you signed the transfer? And if you’ve ever dealt trying to get off-market transfers registered, the registries make it difficult. It takes longer than selling it on the open market.”
He added that the “trick” to avoiding large death benefit taxes is to get the assets out of super before the member dies.
