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Estate planning 

Estate planning should be a key part of everyone’s financial strategy , and our financial planners and superannuation advisers have proven experience in this critical area, from advising you on the best life insurance policy to guiding you on matters such as an enduring power of attorney and will.

So what is estate planning?

Estate planning is the process of planning and documenting how you would like to distribute all your assets following death. It’s about balancing a succession of wealth and critical taxation issues to ensure your wishes are met in the most efficient and cost-effective way, should the worst happen.

Things to consider when planning your estate

When reviewing your estate planning and insurance cover, you need to decide whether you want lump sums or income streams to be paid to beneficiaries. It’s important to consider the following questions:

  • Does your plan make it easy for beneficiaries to save back-door death duties on income and capital gains tax?
  • Does your plan protect beneficiaries from losing their inheritance to bankruptcy or relationship breakdown?
  • Will your children be treated equally? If a beneficiary receives a super benefit and the will does not have an equalization clause, there can be inequity in entitlements.
  • Are you happy for your wealth to be blown by immature or vulnerable beneficiaries?

Estate planning should be done in conjunction with your superannuation planning and should be reviewed regularly to mitigate the impact of taxes on your estate.

Superannuation issues and things to avoid

When looking at your superannuation situation in the context of estate planning, you should consider the following:

  • Death of a member involves the death of a trustee – you must appoint a second individual trustee if the self managed super fund (SMSF) does not have a corporate trustee
  • An enforceable Binding Death Benefit Nomination can bypass the will and cannot be contested – may cause inequality in benefits paid inside and outside super

The tax consequences of lump death benefits paid from an SMSF are shown here:

  Tax Free Component Taxable Component
Death Benefits paid to a tax dependent Tax free Tax Free
Death Benefits paid to a Non tax dependent Tax Free 16.5%
Death Benefits paid to the Legal Personal Representative Tax Free and passes through estate tax free 15% (saves Medicare levy)
Payout of Insurance Benefits Tax Free Element Taxed – if untaxed can be 31.5%
  • Where a person dies and wants the surviving spouse to receive a reversionary pension, the tax rates are dependent on the age of the member when he/she dies
  • A child death benefit pension can be paid to dependent children up until age 25
  • A child under 18 qualifies for adult tax rates on income and can utilize the 15% tax rebate on any taxable pension

Tax Treatment of Death Benefit Pensions

Age of Recipient Deceased is under 60 when he dies Deceased is over 60 when he dies
Aged 60 and over Tax Free Tax Free
Aged under 60 Tax Free component is tax free, taxable component is taxed at marginal rates less a 15% tax rebate Tax Free

Want to find out more about estate planning?

For more information about life insurance, another key aspect of estate planning, visit our ‘Insurance’ and ‘Personal life insurance’  pages. Alternatively, for individually tailored estate planning advice, contact our financial planners.