Do you realise that you can greatly alter the after tax income stream payable to your family in the event of your death. The majority of clients we see simply leave their superannuation assets in the event of their death as a lump sum nomination to their spouse. Apart from the lack of certainty this strategy provides to ensure these proceeds are retained for the future benefit of the family blood line, this also means that any income generated from this lump sum is tax in the hands of the spouse only.
With appropriate planning, the rate of tax payable can be as low as 0% compared to the potential of paying the highest marginal tax rate by taking advantage of taxation legislation.
Take the following basic example:
Rod is married to Sue and they have 2 children aged 2 & 4. Rodd has $200,000 of accumulated super assets and $1,800,000 of Life Insurance as part of his self managed super fund. In the event of Rod's death the after tax income can vary greatly depending upon how the benefits are received. Consider the 3 following outcomes.
1. Rod leaves his $2,000,000 Superannuation Death benefit via a binding nomination to his wife Sue. Assuming Sue generates a 5% income return on these proceeds and has no other source of income, Sue would pay tax of $8,550 providing a net income of $41,450.
2. Rod leaves his $2,000,000 Superannuation Death benefit via a binding nomination to his estate to fund a Testamentary Discretionary Trust for Sue and their 2 children. Assuming these proceeds again generate of 5% income return and this income is split $16,000 to each child and the remaining income ($18,000) to Sue and there is no other source of income, total tax payable would be $300 providing a net income of $49,700.
3. Rod leaves his $2,000,000 Superannuation Death benefit via Death Benefit Pensions to Sue & the children. Assuming the pensions where established by splitting the death benefit 50% in favour of Sue and 25% to each of the children and Sue draws a pension of $20,000 and the children drawn a pension of $15,000 each, and there is no other source of income, the total tax payable would be nil providing a net income of $50,000.
Whilst these are simple and generalised examples which do not take into account Rodd's & Sue's full financial and personal position such as the level of income ongoing required, the trust deed of the super fund or estate planning objectives of Rodd and Sue, this shows that the same Superannuation Death Benefit can generate a significantly increased amount of net income to provide for Rodd's family in the event of his death depending on how it is structured.
So ask yourself, have you structured your superannuation assets to meet your estate planning objectives and maximise the after tax income for your family?
Thanks to: Personal Risk Professionals