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Leaving super to an estate makes more tax sense, says expert

It is more tax effective to leave superannuation to an estate rather than a binding death benefit nomination to children, says an accounting expert.

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Peter Johnson, founder of Advisers Digest, told attendees at the SMSF Adviser Technical Strategy Day in Brisbane last week that it is best to only leave a BDBN to children if an individual is genuinely concerned that someone will make a claim on their estate.
 
“Leaving [superannuation] to your spouse has no [tax] consequences, but what if they die? Who are you going to leave it to?” he asked.
 
“What if you have a new spouse? Your kids are going to get nothing. Leaving your super to your kids can be a disaster.”
 
Johnson continued that he often has clients who have made a BDBN to their children and not to their estate because they wanted to make sure there would be no claim on their estate.
 
However, he said the consequences of that decision meant the children would pay 17 per cent tax instead of 15 per cent.
 
“That’s an extra 2 per cent that is taxable income to the kids, and that almost always means they did a Division 293 on their superannuation, which they didn’t hold and it will mean they blow their health insurance rebate,” he said.
 
“And if they're getting childcare support, they lose that as well. Leave it to the estate. It's 15 per cent tax. It's no stress. The estate just puts it in its tax return, pays 15 per cent or could be less, depending on how much income the estate earns for the year, and then it comes out.”
 
Johnson continued that superannuation is not necessarily the most tax-effective place for building wealth.
 
“If you've got $500,000 in a company, and attached to that is a couple of $100,000 of franking credits, and you've got six grandkids, you could put all that money into testamentary trusts and landing each of those kids $20,000 a year,” he said.
 
“It’s way better than superannuation with some planning. For those who would be paying tax, you probably want to maximise what they have in superannuation and then live off tax-free pensions as much as they can. Then you want to make sure that the kids don't cop a massive tax bill.”
 
The SMSF Adviser Technical Strategy Day will move to Melbourne on Tuesday, 22 October and Sydney on Thursday, 24 October. Tickets are still available for these events.
 
 
 
 
 
 
 
Keeli Cambourne
October 22 2024
smsfadviser.com

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David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

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Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

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Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

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Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

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