Tag Archive: Estate Planning

1. Don’t get hit with Super death taxes

   July 23, 2014 1:54 pm Comments Off on Don’t get hit with Super death taxes

   What happens after you go is often one of those things left for someone else to worry about.  But your adult kids won’t thank you for an unnecessary tax bill, so what can you do about it?

   A large portion of most people’s Super is considered “taxable” due to the fact that they or their employer have received a tax deduction when it was contributed.  By the time a pension is drawn from the fund post retirement or after age 60, it is generally tax free anyway, so largely ignored.

   BUT, if the Super finds itself in the hands of adult children (over 25 or over 18 and not studying full-time), they will pay 17% tax on a portion of the proceeds.  The portion is determined by the percentage of the fund that was considered “taxable” at the point when a pension was first commenced.

   For example, let’s assume Jack has $1m in his super fund today, of which 80% had been created through contributions that have received a deduction, along with the associated earnings.  If he were to pass away today, his children could be up for $136,000 in tax.

   The solution is to put in place a proactive “Withdrawal and Re-contribution” strategy that increases the percentage of the fund that is considered “tax-free”.

   To do this, Jack needs to:

   • Be retired, or over age 65 and therefore able to withdraw lump sums from his super fund without paying tax.  If he’s retired he can withdraw up to $180,000 as a one-off tax free payment between the ages of 55 -59, or at 60 he can withdraw any amount tax free.
   • Be able to contribute to super (if retired be under age 65, or if over 65 be able to meet a 40 hours in 30 days “work test”)
   • Be able to re-contribute the amount to super without breaching any Contribution Caps (which are typically $180,000 per year or $540,000 using the 3 year bring forward rule under age 64).  See our Post Budget Ready Reckoner for further details.

   Assuming we start this strategy early enough, Jack may be able to eradicate the taxable portion of his fund completely and save his children the $136,000 in tax.

   There’s a range of complexities and opportunities that make advice critical for the over 55’s when it comes to Super.  Ensure you, or your family members, don’t make costly mistakes during this important self-funded retirement period.

2. Real Money Lessons

   May 22, 2014 10:23 am Comments Off on Real Money Lessons

   This idea came from Fred, who’s 75 going on 25 by the way! A career entrepreneur, his passion and energy isn’t slowing any time soon! Neither too are his ideas for leaving his family well prepared for the future, especially his grandchildren.

   Fred spent his lifetime building businesses, which like many people has had its fair share of boom and bust successes and failures. But he credits his father’s early advice on savings for where he is today. Fred has well in excess of $2m to fund every last lifestyle wish and medical requirement, so “comfortable” is how he describes his financial position.

   And so it was mid last year, having been one of the first to entrust Greenlight to manage his SMSF pension accounts, he asked the question

   “Why couldn’t I set up multiple bank and trading accounts in my SMSF, and let my grandchildren manage some of their inheritance today? It would give me an avenue and a vehicle to teach them what I can see they need to be taught – patience, responsibility and accountability.”

   Fred wishes he’d taught his own children more, but like most Father’s was busy… And his focus was on ensuring he could provide his kids with the best education, great holidays, a nice house and yard, the list goes on.

   But with more time now, and opportunity to reflect on changes in today’s pace of life, he’s desperate to spend time with his grandchildren, teaching them the things he most valued about his own upbringing.

   And the idea seriously got the attention of the whole extended family!

   How it works:

   • Fred’s 100% in retirement, and all of his super monies are fully accessible, tax free.
   • He can spend unlimited amounts (though this strategy might be reigned in slightly for people trying to access the Seniors Card post 1/1/15 after Budget Announcements!)
   • He can’t contribute any more to super, so the kids have to work within the constraints of holding money in shares vs cash (incl Term Deposits), and expenditure
   • Fred can monitor every transaction through Greenlight Online using datafeeds provided by the bank and trading accounts
   • Greenlight’s fees are fixed, so any increase in trading activity has no impact on Fred’s costs
   • Fred retains 100% actual control of the money within his SMSF

   And almost a year on, the scoreboard has become somewhat of a family talking point – OK, competition! Each of the 5 grandchildren, ages ranging 16 to 28, started with $25,000 in cash on 1st August 2013. The total values range from $29,336 to $18,943. Only 1 grandchild has spent any of the money, while the rest are largely focused on cash rates and sharemarket movements. Most interesting is that 2 of the grandchildren in particular, have taken a FAR greater interest in both their super and saving than they have ever indicated before, so it’s been the start of something pretty amazing.

   Talk to us more about their progress, or setting up your own arrangements for children or grandchildren. Though every family is different, and there’s some tips and traps to be mindful of, something like this, might just work for you too!