Superannuation, the ultimate government cash cow?

[dyna]

Further to the Hill v Zuda High Court judgement which was reported in the Weekend AFR 8-9 th October 2022 :

The executor of the person's will can be nominated as the beneficiary of the deceased's SMSF ( or any other fund) superannuation benefits , allowing the will to then determine what is to happen to the money.

 

[Belli]

Further to the Hill v Zuda High Court judgement which was reported in the Weekend AFR 8-9 th October 2022 :

The executor of the person's will can be nominated as the beneficiary of the deceased's SMSF ( or any other fund) superannuation benefits , allowing the will to then determine what is to happen to the money.

Yes, the BDBN can nominate the legal personal representative rather than dependants as defined in section 309-19 of the ITA.

Will makers may wish to consider, after receiving legal advice, including a clause establishing a superannuation death benefits proceeds sub-trust to receive superannuation death benefits of the will maker following their death. Generally, the trust is similar to a testamentary discretionary trust, however, beneficiaries are limited to people who are death benefit dependants.

Ideally drafting of the Will should take into account the provisions of the SMSF Trust Deed/BDBN and maybe consider gifting the shares in the Corporate Trustee of the SMSF to the LPR. That provides to the LPR the power to hire and fire the trustee of the SMSF.

I've seen clauses along these lines



In order to become a Director, I think the Executor will probably need to apply for a DirectorID is they haven't already got one.

PS: I believe people need to bear in mind while the High Court decision means the relevant regulation does not apply to SMSF's, it is the provisions in Trust Deed which are paramount. A badly drafted Deed if defective can cause a whole world of pain. Should the funds involved be substantial, lots of litigation may be flung about.

 

[dyna]

Yeah, reading through those court cases makes you wonder, eh?
Rich people are supposed to be smart, right?
Umm...not always, it seems.
legend has it, that the late Robert Holmes-a - Court was walking around for months before the grim reaper got him, with an unsigned will inside his jacket pocket.

 

[Value Collector]

What do you guys think of a rule that meant that the super left when some one dies has to be put into the super account of the beneficiaries of the will.

Eg, if your mum dies leaving super behind it gets added to your super, not paid out in cash?

 

[Belli]

What do you guys think of a rule that meant that the super left when some one dies has to be put into the super account of the beneficiaries of the will.

Eg, if your mum dies leaving super behind it gets added to your super, not paid out in cash?

If you are a dependant (as defined*) the death benefit can be as either a lump sum or as an income stream (Trust Deed again). If you are not a dependant, the death benefit must be paid as a lump sum.

Definition:

• your spouse
• your child (under 18 years of age)
• any other person you are in an interdependent relationship with
• a person who is substantially financially dependent on you.

It's pretty tight. Some widow(er)s have lost either a large portion or the lot of the age pension when the funds were paid out. Being now single and having a load of dosh can do that!

 

[Belli]

Rich people are supposed to be smart, right?

LOL. If you read the Monroe v Monroe decision of 2015 (Queensland courts) you will notice the dude who signed the BDBN was a solicitor. The BDBN was deemed defective.

 

[Value Collector]

If you are a dependant (as defined*) the death benefit can be as either a lump sum or as an income stream (Trust Deed again). If you are not a dependant, the death benefit must be paid as a lump sum.

Definition:

• your spouse
• your child (under 18 years of age)
• any other person you are in an interdependent relationship with
• a person who is substantially financially dependent on you.

It's pretty tight. Some widow(er)s have lost either a large portion or the lot of the age pension when the funds were paid out. Being now single and having a load of dosh can do that!

Yeah, I have been thinking that keeping inheritances from super in super is probably a good rule to have.

 

[Belli]

Yeah, I have been thinking that keeping inheritances from super in super is probably a good rule to have.

The funny thing, or maybe not so funny, is how many people think super forms part of their estate. It doesn't. So the Executor of the deceased estate is not automatically the Trustee of the SMSF from what I have been informed. And it is only the Trustee who can payout the benefit. Some find it very difficult to grasp the separate functions which is totally understandable.

Things can get very weird at times.

 

[Belli]

May as well throw these thoughtd in for what they are worth.

Many will have their BDBN as payable to their beneficiaries on a equal split as that's fair right?

However, consider the situation where there are two beneficiaries and each receive say, $200k and it is all taxed-taxable (concessional contributions) which attracts 15% tax plus Medicare levy.

Ben A has an income of $100k, has a large HELP debt and no health insurance.
Ben B also has an income of $100k, no HELP debt and has private health insurance.

Guess which beneficiary probably pays a larger amount in tax?

If fed through a Will which has a super proceeds trust , it is likely possible for the number crunchers to massage the figures so each receives a proportional amount and the overall tax out come for each is approximately the same. Some may view that as being even fairer.

Alternatively, if you are unfortunate enough to know of your imminent demise, arrange for an in specie transfer of the assets (shares are much easier for this) to your personal name and should your Will establish a testamentary trust for your assets, your beneficiaries may be eternally grateful for your foresight in the face of adversity - or not depending how much they liked you.

These are random thoughts on these issues which have come to me over the years so always get professional advice.

 

[dyna]

Yeah, I have been thinking that keeping inheritances from super in super is probably a good rule to have.

And above all else, to paraphrase Noel Whittacker : if you see the Grim Reaper a' comin for you ,down the garden path , give notice to the superfund and get the cash into your bank account. A.S.A.P.

Saves you ( well not you, the corpse ) ...your besties...( saves them, 15% tax plus 2% medicare levy)

 

[Value Collector]

And above all else, to paraphrase Noel Whittacker : if you see the Grim Reaper a' comin for you ,down the garden path , give notice to the superfund and get the cash into your bank account. A.S.A.P.

Saves you ( well not you, the corpse ) ...your besties...( saves them, 15% tax plus 2% medicare levy)

Yeah, unless your besties are spend thrifts, and are going to waste the money, part of me wishes that the pay out just went straight into their super.

 

[Belli]

Yeah, unless your besties are spend thrifts, and are going to waste the money, part of me wishes that the pay out just went straight into their super.

Went through the same thought issues but finally decided it was best to put those aspects aside, set things up to provide as much asset protection as possible for my beneficiaries in a tax effective way and be done with it. It's then entirely up to them. Any s&*t fight after my demise ain't going to be my problem.

 

[sptrawler]

Vanguard super up and running at last, should put downward pressure on fee gouging by funds IMO.

Vanguard looks to shake up Australia’s $3.3 trillion super sector with low-fee products

US investment giant Vanguard has launched a suite of low-cost super products aimed at disrupting the $3.3 trillion sector.

www.smh.com.au

From the article:
Vanguard is best known for its low-cost index investing, expertise which they plan to use in the superannuation space. As well as the default super option, it is launching index-based diversified and single sector investment options. The yearly fees range from 0.39 per cent to 0.58 per cent.
He said Vanguard’s fees would be disruptive and the products aimed to spur innovation and drive down fees for members across the sector. Treasury analysis in 2020 found $30 billion is paid in super fees each year, more than households pay on their energy or water bills. By 2034, it is estimated Australians could be paying $45 billion in super fees.

The Your Future Your Super reforms, introduced by the former government, aimed to reduce fees and included a performance test that bans underperforming funds from accepting new members and a “stapling” measure that ties workers to one fund for life. The Albanese government is reviewing the laws after feedback from the sector.

 

[Belli]

I suspect it is for those who have no interest in superannuation and simply look at percentages without going much further.

I did some quick numbers against my SMSF and Vanguard's offering is way, way more expensive.

 

[Dona Ferentes]

I did some quick numbers against my SMSF and Vanguard's offering is way, way more expensive.

Ditto.

The only attraction is for very low balances, for newcomers to the workforce. And for whom any 'discount' would be minimal. Then to make their money, Vanguard, like them all, will rely on apathy and lack of engagement as balances increase.

 

[Belli]

I noticed from the article @sptrawler posted that:

"Vanguard’s default option will adjust 36 times over the course of a member’s life so the asset allocation and investment strategy within the fund is age-appropriate, with young members given higher exposure to growth assets, and those nearing retirement adjusted to more conservative asset classes."

Not a fan of lifestyle funds but others may prefer them. Also, it seems it is pooled funds. So when another investor sells or moves to some other product those remaining get hit with a capital gain if my understanding is correct.

Not going to look at it any more as I have no further interest in it.

 

[Belli]

For those who may be considering downsizing, the legislation reducing the eligibility age from 60 to 55 (as well as other matters) has been passed by Parliament.

"Income Tax Assessment Act 1997 to enable individuals aged 55 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their main residence."

Bill Details - ParlWork | Parliament of Australia

parlwork.aph.gov.au

Don't overlook any bring forward contributions in conjunction with this. There are many twists to this legislation e.g. your spouce can use it even if never the owner, so best to study it carefully and seek professional advice if necessary

However, given the murmurings to limit the amount in superannuation, including from Australian Super I believe, it could get tricky.

 

[dyna]

Those " murmurings" will become bellowing, come the next election, people. Could even be a few tweaks to SMSF's by the next budget, too.
Remember it was the Grattan Institute that first began calling for a reduction in concessional superannuation contributions to just 15 grand a year way back , in about 2018.
The writing's on the wall ,folks.
Get the planning stuff done now while the opportunity is still there.

 

[Belli]

As I'm retired, over the age of 70 and the only member of the SMSF, I've decided it is best for me to wind it up.

So arrangements are being made to transfer the pension account to an industry fund. Simply get a monthly pension deposited to my account. In conjunction with the investment income from my present personal holdings outside of super, I'm of the opinion I am very well off.

The amount over the balance cap will be be realised. I'll transfer those proceeds to my kids in equal proportion. They can do what they wish with the funds. And it'll be tax-free in their hands.

 

[Junior]

Vanguard Super offering is a disappointment.

Having 36 adjustments...I mean it's OK if you intend to take no interest in your super, and plan to retire at 65 years old and just want the super fund to handle everything for you. If you aren't John Citizen however, then it may not be the best alternative.

In terms of fees. It's cheaper to use a Retail fund and choose Vanguard investment options from the menu.

Hopefully they slash fees and bring in a bigger menu/more features over time.