The decision in Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited [2015] FCA 612 is another reminder of the fact that superannuation death benefits are not an estate asset.
Broadly the background was as follows:
The member died without making any binding nomination for his superannuation benefits, although binding nominations were permissible.
The member had made a non-binding nomination to his wife, however she predeceased him.
The trust deed for the fund provided that if there was no binding nomination the trustee retained the discretion to pay a death benefit to the member’s -
dependants; or
legal personal representative (LPR).
The trustee of the super fund resolved to pay the death benefit to the member’s dependants, namely 3 adult children, in equal shares.
The LPR challenged the distribution on the basis of comments in the member’s will, including the fact that two of the adult children had entered into a settlement agreement with their father 20 years earlier confirming they would have no entitlement under his estate.
Under the member’s will, his estate made provision for grandchildren and the child who was not a party to the settlement the other two children had entered into.
In rejecting the LPR’s challenge it was confirmed that superannuation is not an asset of an estate and a trustee is not bound to follow the directions of a will.
In particular, even if superannuation is specifically mentioned in a will, this does not make it an asset subject to the terms of the will. While a trustee may review a deceased member’s will, it is not the role of a super fund trustee to attempt to resolve issues relating to their estate.
Rather, a trustee must independently determine the distribution of a death benefit, unless there is a valid binding death benefit nomination.
It was also confirmed that in making a determination, a super fund trustee need only show that their decision is fair and reasonable. Any court review of a trustee decision therefore did not need to analyse the trustee’s processes or reasoning.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Gorillaz song ‘We got the power’.
While there are some, narrow exceptions, generally an SMSF is only able to invest in an ungeared unit trust and subject to strict requirements set out in the Superannuation (Supervision) Regulations (namely regulation 13.22C).
The provisions of regulation 13.22C are detailed and prescriptive and if there is any intention to access the concession regard should be had to the exact requirements.
One issue that often arises for SMSFs that do have a partial ownership interest in a trust that otherwise complies with regulation 13.22C is whether the SMSF can acquire additional units in the structure from a related party.
Generally such an acquisition by an SMSF is prohibited under the in-house asset rules, however there is an exemption from those rules in relation investments in trusts that comply with regulation 13.22C.
Furthermore there is an exemption from the prohibition that also applies against SMSFs acquiring assets from related parties for ownership interests in trusts that comply with regulation 13.22C.
The exceptions operate to specifically permit the acquisition of shares in companies or units in unit trusts, so long as all provisions of regulation 13.22C are satisfied at the time of the acquisition and on an ongoing basis.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Radiohead song ‘Bulletproof’.
In Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT needs to be structured in order to ensure infant beneficiaries can access the excepted trust income regime. As usual if you would like a copy of the Private Ruling please contact me.
In particular, the Tax Office states that in order for an SPT to satisfy the conditions to access excepted trust income and the provisions in sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act, the following criteria must be met -
the key beneficiaries must be infant children.
the purpose of the SPT must be to provide for the maintenance, education and benefit of the children.
the children must be the only capital beneficiaries of the SPT.
any power to appoint additional beneficiaries must be restricted to ensure any appointment will meet the requirements of sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act.
the income of the SPT can only be accumulated for, or distributed to or for, the benefit of the children (although based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that (for example) the surviving parent can also be an income beneficiary).
property transferred to the SPT for the benefit of each of the children will be held exclusively for each of the children and can be distributed to only that child during or at the end of the SPT. Again, based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that on vesting of the SPT, if the relevant children die before the SPT vests, the trust fund can be held for the legal personal representatives of the children.
** For trainspotters, in 1980/1981, when much of the original thinking around these rules was developed, the Dolly Parton movie and song 'Working 9 to 5' were big hits. 'Working 9 to 5' being used as a reference to having to follow the rules set by the 'machine' - hence the reference in the title to this post. Given the likelihood many readers of today's post were not born in 1981, further learning is available here -
In another, possibly related, Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT can ensure infant beneficiaries access excepted trust income. As usual if you would like a copy of the Private Ruling please contact me.
As mentioned last week, the Tax Office accepts that an SPT can still access excepted trust income where the relevant superannuation death benefit is not paid directly to the deceased member's estate, but instead to their surviving spouse.
Importantly however, as is the case with estate proceeds trusts (to learn more about this structure see our previous post here - Testamentary trusts - is it ever too late?), the amount of income that is excepted trust income is limited to the amount of income that would have flowed to the child from property that would have devolved on the child from the estate of the deceased person under the laws of intestacy (see section 102AG(7) of the Tax Act).
In other words, the Tax Office essentially treats the superannuation death benefit as if it formed part of the estate of the deceased person. This means that in states such as NSW and Victoria the strategy is likely to be unavailable for tax planning purposes given that in those states infant children are not entitled to anything on intestacy if there is a surviving spouse.
In the Private Ruling the Tax Office also confirms that -
in order to access the excepted trust income regime, the infant beneficiary of the SPT must (pursuant to the terms of the trust deed) acquire the trust property (other than as a trustee) when the trust ends (as mandated by section 102AG(2A) of the Tax Act).
excepted trust income is only available for the SPT to the level that would have been derived had the parties been dealing on an arm's length basis (see section 102AG(3) of the Tax Act). Importantly, this requirement is not that the parties themselves have to be arm's length; rather they must act on an arm's length basis.
the income of an SPT will not be excepted income if it is derived, directly or indirectly, under or as a result of an agreement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that the assessable income would be excepted trust income. However, if the purpose of deriving excepted trust income is no more than merely incidental, then the purpose is disregarded and the income may still be excepted (see sections 102AG(4) and (5) of the Tax Act).
** For trainspotters, in 1981, when much of the original thinking around these rules was developed, the Depeche Mode song 'Just Can't Get Enough' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=_6FBfAQ-NDE
As explained in these posts, historically there was a concern that the Tax Office may adopt a narrow interpretation of the tax legislation and mandate that the superannuation death benefits pass directly from a super fund to an SPT in order to access the excepted trust income concessions.
This was because, section 102AG(2)(c)(v) of the Tax Act allows infants to access excepted trust income where the transfer of funds to the SPT is 'directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund'.
In Private Ruling Authorisation Number 1012994963374, the Tax Office confirms it will accept that property transferred to the benefit of a minor by the widow or widower sourced from superannuation moneys originally paid to the widow or widower (ie not to the SPT), will still fall within the requirements of the Tax Act (and in particular section 102AE(2)(c)(ii)). As usual if you would like a copy of the Private Ruling please contact me.
In support of this interpretation the Tax Office references comments in the Canberra Income Tax Circular Memorandum (CITCM) 884 published in 1981 to confirm its view that superannuation monies are to be treated as if they formed part of the estate of the deceased person, even if there is an ‘interposed step’ where the funds pass through the hands of a surviving spouse.
This means that the requirement set out in section 102AG(2)(d)(ii) of the Tax Act will be met and in turn the assessable income of the SPT will be excepted trust income. Section 102AG(2)(d)(ii) ensures access to excepted trust income where funds are transferred to the trustee for the benefit of the beneficiary by another person out of property that devolved upon that other person from the estate of a deceased person and was transferred within 3 years after the date of the death of the deceased person.
** For trainspotters, in 1981, when the CITCM referenced here was released, Journey's song Don't Stop Believin' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=2NQIPVqLMUg
The Federal Court's decision in Cunningham (Trustee) v Gapes (Bankrupt) [2017] FCA 787 (Federal Court, Collier J, 13 July 2017) (Cunningham) is vital guidance for all advisers in relation to the interplay between superannuation death benefits and the Bankruptcy Act 1966.
In particular, the case highlights the fact that a superannuation death benefit paid via a deceased estate to a bankrupt beneficiary is divisible amongst the creditors of the bankrupt.
At a minimum therefore, advisers should consider advising clients who have at risk potential beneficiaries to utilise a binding death benefit nomination (BDBN). The BDBN should mandate that any death benefit is paid directly from the superannuation fund to a beneficiary at risk of bankruptcy. Testamentary trusts
One additional strategy that should be considered in the context of deceased estates generally, and specifically in relation to superannuation death benefits, is the use of comprehensive testamentary trusts.
As readers will be aware, 1 of the key reasons that testamentary trusts are often recommended is due to the asset protection offered by the structure generally, and in particular where a potential beneficiary is at risk of suffering an event of bankruptcy.
This approach can help protect beneficiaries, regardless of whether a BDBN is in place, or where a BDBN is implemented and mandates payment of the death benefits to the legal personal representative for distribution under the will.
Unfortunately, we have seen a number of examples recently where no testamentary trust has been incorporated under a will, with superannuation death benefits passing directly to the estate and then in turn to a bankrupt beneficiary. In other words, creating the exact same factual matrix as existed in Cunningham.
Key issues to remember
In summary, the key issues to be aware of in this type of situation are as follows:
Where a beneficiary is bankrupt at the time of the death of the willmaker, the bankruptcy legislation mandates that the bankrupt's entitlements are to pass to their trustee in bankruptcy.
If there are any assets remaining after the bankruptcy has been discharged, then the beneficiary is entitled to those assets.
The right to due and proper administration of the deceased estate is an asset that forms part of the bankrupt's estate, and therefore also vests in the trustee in bankruptcy.
If an executor of an estate seeks to avoid assets passing to a trustee in bankruptcy where a beneficiary is entitled personally under the will, the executor will themselves be personally liable.
Importantly, each of the above issues can be legitimately avoided by the appropriate structuring of a testamentary trust into a will, prior to death.
Where testamentary trusts are not included under a will, best practice dictates that the executor should obtain a formal declaration from each beneficiary, before making distributions to them under the will, whereby each beneficiary confirms that they are in fact solvent.
If a beneficiary refuses to provide the declaration, then further searches should be made by the executor to minimise the prospect that the executor might become personally liable to a trustee in bankruptcy.
A case study example
One example of a factual scenario we have been recently asked to assist with that highlights the importance of advisers working collaboratively in this area to deliver value to clients is as follows:
An accountant had provided a written recommendation to a willmaker that testamentary trusts should be included in their will for asset protection purposes - this advice included a specific recommendation in relation to 1 beneficiary who had a history of financial misadventure in business activities.
The advice was provided to the willmaker's long-standing, although unspecialised, lawyer who dismissed the recommendation for testamentary trusts on the basis that it was an 'unnecessary complication that accountants and financial planners push as part of their product sales'.
At the time of the willmaker's death, the relevant son was indeed bankrupt.
In working to discharge their duties, the executors of the will asked us to assist in obtaining probate of the will and also confirm that they were obliged to pay the bankrupt beneficiary's entitlements to the trustee in bankruptcy. We were able to obtain probate and also confirm the duty that the executor was obligated to pay to the trustee in bankruptcy.
The executors also sought advice from specialist litigation lawyers as to whether the accountant or the lawyer could be potentially liable for failing to ensure that the willmaker included a testamentary trust in their will.
The specialist litigation advice suggested that the prospects of recovering any damages were in fact quite low for the bankrupt beneficiary.
The primary reason for this was that if a testamentary trust had been used, then the bankrupt beneficiary would have simply been 1 of many potential beneficiaries, and the only 'asset' that they would have received would have been the right to due administration of the testamentary trust. This right to due administration would arguably have no monetary value and therefore the damages awarded on suing the lawyer and accountant would have probably only been nominal.
The above conclusion was not ultimately tested through the court system. It would therefore seem an unnecessarily risky approach for advisers to dismiss the benefits of testamentary trusts for bankrupt beneficiaries on the basis that they may not be liable if their advice is later shown to be inappropriate.
Conclusion
The need to take active steps to protect assets and wealth, as well as concerns with the overall effectiveness of the steps taken, are not new concerns.
Arguably however, those concerns have never been taken more seriously by a greater number of people than they are currently, particularly in relation to superannuation death benefits.
The recent case law in this area is a timely reminder of the need to ensure comprehensive asset protection strategies are implemented as part of an integrated tax and estate planning exercise.
As usual, if you would like copies of any of the cases mentioned in this post please contact me.
The above post is based on the article we had published in the Weekly Tax Bulletin.
** For trainspotters, ‘skirting the shoals of bankruptcy’ is a line from a song named ‘Accountancy Shanty’ by Monty Python from their 1983 movie ‘The Meaning of Life’, watch here – https://www.youtube.com/watch?v=7YUiBBltOg4
The 2017 superannuation reforms are widely acknowledged as being the most fundamental changes to the superannuation landscape in over a decade.
While the reforms will have a significant impact across a range of areas, the consequences from an estate planning perspective are at risk of being overlooked.
In no particular order, the fundamental issues that must now be considered when managing superannuation entitlements from an estate planning perspective are as follows:
Where an individual has a reversionary pension for an amount currently in excess of the $1.6 million balance transfer cap (which will be indexed for CPI), steps will need to be taken to manage how the amount which gets rolled back to their accumulation account is dealt with upon their death – for instance, via a binding death benefit nomination.
The utility of a superannuation proceeds trust is significantly undermined where there are no death benefit dependants for tax purposes. Where a person has superannuation entitlements and no tax dependants, the consequences of the ‘fast death tax’ remain critical to consider. The so-called ‘fast death tax’ arises where funds that could otherwise be withdrawn tax free by the member during their lifetime remain in the fund at the date of death of the member and are then subject to tax on the distribution from the fund.
The ability to make anti-detriment payments ends on 30 June 2017. Anti-detriment payments were beneficial in many situations, although had limited applications for self-managed superannuation funds.
Any estate planning strategy will continue to be ultimately dependent on the trust deed for the relevant fund and a detailed review of the deed should be undertaken before any succession strategies are implemented.
The conservative approach is that all trust deeds should be reviewed in light of the 2017 changes, with particular focus on the client’s estate planning objectives. Our experience to date is that in most cases, a deed update will be appropriate.
Regardless of whether a trust deed is updated, reviewing related estate planning documents to ensure that they align with the client’s objectives is critical. In particular, all death benefit nominations and reversionary pensions must be reviewed (for instance, in the context of the $1.6 million transfer balance cap mentioned above). To the extent that there are binding nominations in place, the structure of those nominations may need to be updated (again, previous posts have explored a number of relevant aspects in that regard, see Superannuation and binding death benefit nominations (BDBN), Death benefit nominations – read the deed and Double entrenching binding nominations).
Similarly, the ability to make decisions, including potentially renewing or changing nominations in the event of a member’s incapacity, must be addressed by a comprehensive, superannuation compliant, enduring power of attorney. An appropriately crafted document in this regard will also provide a pathway to potentially avoid ‘fast death tax’ being triggered.
The utility of reversionary pensions will be significantly undermined if the consequence of the reversionary pension is that the recipient exceeds their transfer balance cap.
That said, in the right factual scenario, a child pension may provide planning opportunities as a child is entitled to access each of their parents transfer balance cap – in other words, if the two parents pass away, the children of the relationship can get access to up to $3.2 million. Unless a child has a permanent and significant disability however, any balance in a pension account on the child reaching the age of 25 must be commuted and paid to them as a lump sum. From an asset protection perspective, this has significant adverse consequences that need to be considered.
A carefully crafted testamentary trust will, which can provide tax benefits that are broadly similar to those that could be obtained by a child allocated pension, may be preferable to ensure that access to capital only takes place at appropriate junctures and not automatically at the age of 25.
Next week’s post will consider some of the specific post-death consequences of the new rules.
The above post is based on the article we recently had published in the Weekly Tax Bulletin. Finally, many of the themes in this post were featured in our recent Estate Planning Roadshow.
The 2017 superannuation reforms are widely acknowledged as being the most fundamental changes to the superannuation landscape in over a decade.
While the reforms will have a significant impact across a range of areas, the consequences from an estate planning perspective are at risk of being overlooked.
In no particular order, the fundamental issues that must now be considered when managing superannuation entitlements from an estate planning perspective are as follows:
Where an individual has a reversionary pension for an amount currently in excess of the $1.6 million balance transfer cap (which will be indexed for CPI), steps will need to be taken to manage how the amount which gets rolled back to their accumulation account is dealt with upon their death – for instance, via a binding death benefit nomination.
The utility of a superannuation proceeds trust is significantly undermined where there are no death benefit dependants for tax purposes. Where a person has superannuation entitlements and no tax dependants, the consequences of the ‘fast death tax’ remain critical to consider. The so-called ‘fast death tax’ arises where funds that could otherwise be withdrawn tax free by the member during their lifetime remain in the fund at the date of death of the member and are then subject to tax on the distribution from the fund.
The ability to make anti-detriment payments ends on 30 June 2016. Anti-detriment payments were beneficial in many situations, although had limited applications for self-managed superannuation funds.
Any estate planning strategy will continue to be ultimately dependent on the trust deed for the relevant fund and a detailed review of the deed should be undertaken before any succession strategies are implemented.
The conservative approach is that all trust deeds should be reviewed in light of the 2017 changes, with particular focus on the client’s estate planning objectives. Our experience to date is that in most cases, a deed update will be appropriate.
Regardless of whether a trust deed is updated, reviewing related estate planning documents to ensure that they align with the client’s objectives is critical. In particular, all death benefit nominations and reversionary pensions must be reviewed (for instance, in the context of the $1.6 million transfer balance cap mentioned above). To the extent that there are binding nominations in place, the structure of those nominations may need to be updated (again, previous posts have explored a number of relevant aspects in that regard, see Superannuation and binding death benefit nominations (BDBN), Death benefit nominations – read the deed and Double entrenching binding nominations).
Similarly, the ability to make decisions, including potentially renewing or changing nominations in the event of a member’s incapacity, must be addressed by a comprehensive, superannuation compliant, enduring power of attorney. An appropriately crafted document in this regard will also provide a pathway to potentially avoid ‘fast death tax’ being triggered.
The utility of reversionary pensions will be significantly undermined if the consequence of the reversionary pension is that the recipient exceeds their transfer balance cap.
That said, in the right factual scenario, a child pension may provide planning opportunities as a child is entitled to access each of their parents transfer balance cap – in other words, if the two parents pass away, the children of the relationship can get access to up to $3.2 million. Unless a child has a permanent and significant disability however, any balance in a pension account on the child reaching the age of 25 must be commuted and paid to them as a lump sum. From an asset protection perspective, this has significant adverse consequences that need to be considered.
A carefully crafted testamentary trust will, which can provide tax benefits that are broadly similar to those that could be obtained by a child allocated pension, may be preferable to ensure that access to capital only takes place at appropriate junctures and not automatically at the age of 25.
Next week’s post will consider some of the specific post-death consequences of the new rules. The above post is based on the article we recently had published in the Weekly Tax Bulletin.
Adviser feedback raised the adjacent issue of whether an attorney can sign a binding death benefit nomination (BDBN) on behalf of an incapacitated member.
While there are differing views, there has been at least one decision by the Superannuation Complaints Tribunal confirming that an attorney can make a BDBN, namely Superannuation Complaints Tribunal, Decision D07-08\030. As usual, a link to a full copy of the decision is as follows - http://www.sct.gov.au/dreamcms/app/webroot/uploads/determinations/D07-08-030.pdf
The decision of the Tribunal ultimately held the relevant BDBN was invalid for other reasons, it provides at least some authority for the argument that a BDBN need not be made personally by a member.
In this context however it is important to note that the Law Council of Australia, in their submissions to the Australian Law Reform Commission’s Report number 124, confirmed its view that some industry funds will not in fact accept nominations made by an attorney.
Generally, at least for self managed funds, it seems to be accepted that an attorney can at a minimum ‘affirm’ an existing BDBN, if it has lapsed for any reason. This conclusion however is always subject to the terms of the fund’s trust deed and a future post will likely consider this aspect in more detail.
Ideally an express power should be included in a member’s enduring power of attorney to put the attorney (again subject to the trust deed) in the best position to be able to validly make nominations as they determine appropriate, for example using wording as follows –
(a) Any attorney can enter into transactions where their interests and duty could conflict with my interests in relation to the transaction.
(b) Any attorney may sign any form of superannuation nomination (whether binding or non-binding, lapsing or non-lapsing) regardless of whether they may be married to or related to or themselves be a nominee.
Last week’s post explained the broad requirements and main benefits of a Superannuation Proceeds Trust (SPT) established under a will. This week’s post focuses on how View Legal’s testamentary trust (TT) wills deal with any superannuation benefits that are paid to a will maker's estate.
Generally, the range of potential beneficiaries listed under a TT are wider than dependants for tax purposes. The way in which View Legal crafts its TTs however gives the trustee complete discretion about which of the beneficiaries may receive any superannuation benefits available for distribution.
In particular, the terms of the will allow the trustee to essentially establish a 'sub trust' of the TT for receipt of the superannuation proceeds – with the only beneficiaries being those who satisfy the definition of a tax dependant.
In this way, the various benefits of having a SPT, as outlined in last week's post, can be achieved.
If the trustee chooses to utilise a SPT, an example of how the estate assets could flow is as follows:
Given the number of changes to the small business concessions since their introduction back in 1997, it is understandable that many clients and their advisers lose track of the exact way in which the provisions work. Last week, we were reminded when assisting another adviser about one critical aspect of the rules, namely that in many instances it is possible for taxpayers to delay a decision on whether to roll a capital gain over into a new asset, pay the tax, or make a contribution into superannuation for at least two years after the date of sale. Indeed in many cases the deferral opportunity is closer to three years. Obviously (as with most aspects of the small business concessions), care needs to be taken to ensure this planning opportunity is in fact available, however assuming the basic conditions are otherwise satisfied, the additional two to three year window is one that we are seeing regularly accessed. Until next week.
Following the successful launch earlier this year of the View Legal Directors Duties, Estate Planning, business succession and binding death benefit nomination apps, we have now developed and launched a further Apple and Android app. The new app is in relation to Self-managed superannuation funds (SMSF) and can be downloaded via the following links –
SMSFs can provide a range of benefits and opportunities not available via any other retirement savings approach. SMSFs are however heavily regulated and it is vital that fund members have a deep understanding across all relevant areas. The SMSF app is designed to allow the user to narrow down some of the broad areas that might be relevant in relation to establishing, or updating, an SMSF. Depending on the answers provided, the app generates a free white paper containing general information in relation to some of the issues that are often relevant. Until next week.
Recently, an adviser contacted me in relation to an estate planning exercise they were assisting with.
The lawyer advising the client recommended against establishing testamentary trusts until both the husband and wife had passed away.
The financial adviser was therefore exploring whether it would be possible to establish a 'superannuation proceeds trust' to effectively 'sidestep' the lawyer's recommendations.
This week’s post addresses an issue
recently raised with us by an adviser, focusing on the ability to access
insurance proceeds from a superannuation fund on an event of permanent
incapacity.
The
particular issue raised involved the fact that best practice often dictates
that clients should obtain insurance protection on the basis of an inability to
work in their ‘own’, as opposed to ‘any’ occupation.
The
satisfaction of the ‘own’ occupation test is obviously easier than the
condition of release set out under the superannuation legislation, being that a
member must be incapable of working in ‘any’ occupation.
Where
insurance is owned via a superannuation fund there is therefore a risk that
while the fund will receive an insurance payout, it will be unable to release
it to the member until some other condition of release is satisfied (for example,
reaching the retirement age).
Historically
therefore, the conservative view was undoubtedly that own occupation insurance
should always be owned outside super. Importantly, since 1 July 2014, own
occupation insurance is no longer available via superannuation, subject to a
grandfathering for arrangements already in place before that date.
For those
pre-existing arrangements, there appears to be a pragmatic approach adopted,
particularly by those with policies via a self-managed superannuation fund.
This approach involves assuming that a trustee (who will also be a member of
the relevant fund) will adopt a liberal interpretation of the ‘any’ occupation
definition under the superannuation legislation and therefore always allow the
release of insurance proceeds.
Last week an interesting issue arose with the child of a client who was about to travel overseas on an exchange.
The child was a part time employee and member of a superannuation fund. Under the superannuation fund, they were automatically entitled to a life insurance policy which gave a payout of $200,000 on death. The fund required that any payout be made to the legal representative of a deceased member.
The parents of the child felt that it would be prudent to ensure that on receipt of these insurance proceeds the estate would be able to administer them easily – the obvious answer in this regard was the creation of a will.
Unfortunately, in these circumstances, no will is able to be made because in order to make a will, the individual involved must be 18 years of age.
The only substantive exception to this rule is if the will maker, being under the age of 18 years, has lawfully married.
There is nothing certain in life but death and taxes… and adjustments to the limits for superannuation contributions.
Again this week we have had an article featured in the Weekly Tax Bulletin. This time it is by fellow View Legal Director Tara Lucke and I and is extracted below for those who do not otherwise have easy access.
If is often said, there is nothing certain in life but death and taxes… and adjustments to the limits for superannuation contributions. In recent times, particularly given the ongoing adjustments to the limits for concessional superannuation contributions, the way in which to maximise contributions has been an area of focus.
Overview
As is well understood, concessional contributions to superannuation can generally be made by:
an employer of a member;
a member; and
the spouse of the member.
The rules in relation to the quantum of permissible concessional contributions (historically referred to as deductible contributions) have been subject to regular change. The changes have primarily focused on the dollar limit for contributions made in each financial year.
Concessional contributions which currently count towards the annual concessional limit include:
all employer contributions (eg super guarantee, salary sacrifice);
member contributions which are claimed as a tax deduction; and
in some situations, allocations from any fund reserves.
Concessional contribution limits
The maximum amount of concessional contributions that may be paid for the 2014-15 year of income without being subject to excess contributions tax were confirmed at 2014 WTB 9 [286] as follows:
$30,000 per annum per person aged under 49 years on 30 June 2014;
$35,000 per annum per person aged 49 years and over on 30 June 2014.
These limits have been increased, by way of "stepped" indexation, for the first time since the current contribution limit regime was introduced and are unlikely to be indexed again for at least 3 years.
Non-concessional contribution limits
Subject to potential variations by adopting one of the accelerated contribution approaches explained below, the maximum non concessional limits for the 2014-15 year of income (without being subject to excess contributions tax), have also been increased for indexation and are now as follows:
$180,000 per annum per person (for contributions on or after 1 July 2014); and
$540,000 per person averaged over three years (if a 3 year contribution was started before 1 July 2014, then the limit remains $450,000).
Accelerated contributions
Historically, when the per annum limit was capped at $150,000 (and the 3-year average at $450,000), the main strategies available in relation accelerating contributions have been best exemplified by the following table:
In relation to the above table (and the further table below), it is important to note the following assumptions:
contributions are made prior to member's 65th birthday; or
contributions are made after reaching age 65 and the member continues to satisfy the required gainful employment test.
With the changed superannuation thresholds commencing on 1 July 2014 (again as noted at 2014 WTB 9 [286]), it will be important to reference an updated version of the table, as set out below.
Critically, the updated table assumes that the first contribution is made after 1 July 2014.
As set out in the earlier article, if a combined contribution is commenced before 1 July 2014, the previous table continues to apply until the accelerated approach is completed.
As a comparison of the 2 tables clearly illustrates, in many client situations there will be a significant differential in delaying non concessional contributions until 1 July 2014 to take advantage of the increased thresholds.
Last week we had an adviser, probably quite rightly, question us as to why a superannuation trust deed could be totally revoked and replaced with a completely new document, while changes to a family trust deed tend to be extremely piecemeal.
Broadly, the Tax Office accepts that in relation to superannuation funds, a resettlement for tax purposes will never occur. Due to this approach (and stamp duty exemptions that apply in essentially every Australian state), most advisers recommend that when updating a superannuation trust deed, it is best to adopt a completely new deed.
In contrast, where updating a family trust deed, because of the risks associated from a resettlement perspective, it is usually best to only amend the provisions that are in particular need of being addressed.
The 'read the deed' mantra, which is so often used in the context of family trusts, is of similar importance in relation to self managed superannuation funds.
One particular provision to be aware of in this regard is that, even if a nomination (which appears to be binding) is embedded under the deed, unless the provision of that deed has a prohibition against amendment, the intentions of the parties may not in fact be achieved.
For example, the remaining trustees after death could elect to vary the deed (and effectively remove the binding nomination) before ultimately making a death benefit payment.
It is becoming more and more regular to see many people, as part of their overall estate plan, embedding their required superannuation distribution provisions into the superannuation trust deed. Where this is done, the fact that there might be other nominations, or even provisions in a person’s will, not be of any effect – rather the terms of the deed must be followed.
In a future post, I will touch on a related issue concerning binding nominations that are entrenched in superannuation trust deeds.
Following a recent post, I had a number of enquiries, and one particular adviser raised an issue with me which (as she flagged) is often overlooked.
The particular issue relates to the payment of superannuation benefits on death. The legislation requires (and there have been cases supporting this) that the recipient of any death benefit must be alive on the date of the payment themselves – in other words, if the recipient is no longer living at the date the payment is ultimately due to be made, then neither they (nor their estate) will be entitled to receive it.
There are a number of ways to minimise the impact of this rule, however the steps must always be taken as part of the overall estate plan.
