Background
Our client, William, is aged 74 and retired from employment approximately nine years ago. The majority of his income needs are covered with monthly pension payments from his superannuation fund. His superannuation assets are currently valued at approximately $800,000 (100% taxable component).
Unfortunately William’s wife Tara passed away last year. Tara’s only asset was a share portfolio worth $800,000 which has now been passed to William via Tara’s estate.
William has two adult children, Monique aged 40 and Jason aged 38.
William now has peace of mind that his two children will receive an equal financial benefit in the event of his death.
How we helped
William’s main estate planning objective is to ensure that his two children receive an equal financial benefit in the event of his death.
To keep his affairs simple William decides to make a binding death benefit nomination for his superannuation entitlement to be paid to his son Jason. As part of his updated will he decides to gift the share portfolio to his daughter Monique.
Under these circumstances, in the event of William’s death, his daughter Monique would receive an $800,000 benefit from William’s estate. However the benefit that Jason will receive from his father’s superannuation fund will be substantially less. Under the current taxation rules a superannuation death benefit paid to a non-dependent adult child may be subject to tax upon transfer to the beneficiary.
In this scenario the superannuation death benefit paid directly to Jason will be subject to tax at the rate of 17% (15% lump sum tax plus 2% Medicare levy), hence leaving Jason with an after-tax death payment of only $664,000.
After discussing his intentions with our adviser, our adviser suggested that William make a binding death benefit nomination of 50% to each of his children Jason and Monique and redraft his will to ensure his estate is distributed equally between the children.
A great outcome
The strategy presented by our adviser ensures that the after-tax superannuation death benefit would be split equally between William’s two children and the share portfolio would also be equally split via William’s estate.
William now has peace of mind that his two children will receive an equal financial benefit in the event of his death.
To talk to Prosperity about your estate planning needs, contact us today on 1300 795 515 or mail@prosperity.com.au.
This example contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.
The example is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.
This example is based on the following assumptions:
(a) Does not take into consideration capital gains tax implications;
(b) Tax calculations are based on 2017/18 income tax rates;
(c) William’s superannuation entitlement is 100% taxable component; and
(d) William’s superannuation death benefit is paid directly to Jason.
Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee 232 706.