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New laws prompt review of SMSF estate plans

In light of recent laws passed this month, many clients will need to review their estate planning to ensure their will adequately explains how superannuation and insurance payments should be dealt with.

 

DBA Lawyers director Daniel Butler said there was a recent change to the tax treatment of income from super in a testamentary trust. Subsection 102AG(2AA) was added to the Income Tax Assessment Act 1936 in Treasury Laws Amendment (2019 Measures No. 3) Act 2019, which was passed on 23 June 2020.

Mr Butler said the measure was first announced in the 2018–19 federal budget in order to clarify that minors should only be taxed at adult marginal tax rates in respect of “income a testamentary trust generates from assets of the deceased estate”.

The budget papers for 2018–19 federal budget explained that income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors.

“However, some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust,” the budget papers stated.

The explanatory memorandum (EM) states that the requirements under the new subsection will ensure “there is a connection between the property from which excepted trust income is derived and the deceased estate that gave rise to the testamentary trust”, Mr Butler said.

Mr Butler clarified that a superannuation death benefit relating to a deceased member’s interest in a superannuation fund is very different from the types of schemes being contemplated by the new subsection.

“While this is an interest under a trust, the deceased member was entitled to that payment prior to their death and the payment can either be paid to their executors (or legal personal representative) or to a dependant,” he explained.

“Similarly, insurance proceeds paid to a person’s executors that form part of their deceased estate, from a life insurance policy on their life following their death, has a relevant connection to the contractual entitlement to insurance cover.”

Both superannuation death benefit payments and insurance proceeds paid to their executors following a person’s death that forms part of their deceased estate have a relevant connection to that person’s membership interest or contractual entitlement, he stated.

These amounts, he said, can be contrasted to the example in the EM where a related family trust makes a capital distribution of $1,000,000 to the testamentary trust.

However, clients may still need to review their estate plans and wills to make sure they are appropriate in view of this new law, he cautioned.

“Wills moving forward should be more carefully drafted as many wills do not provide sufficient guidance on how superannuation and insurance payments should be dealt with,” he warned.

“Some, for instance, seek to transfer these amounts directly to a testamentary trust rather than being paid a deceased estate which then converts to a testamentary trust following the finalisation of the administration of a deceased estate.”

Mr Butler said the deceased estate generally progresses into a testamentary trust once the “date of assent” is arrived at.

“The date of assent is, broadly, where the assets and liabilities of the estate can be established and the estate can now be dealt with certainty. Prior to this stage, a potential beneficiary generally has no interest in an unadministered estate,” he explained.

Mr Butler also noted that there is opportunity for the Commissioner of Taxation to exercise some discretion where he considers the income from superannuation death benefit payments and insurance amounts do not relate to the property in question.

“This aspect can give rise to some degree of uncertainty if there is not a sufficient connection between the proceeds and the deceased person or the appropriate documentation such as a suitably drafted will is not in place,” he said.

 

 

Miranda Brownlee
29 June 2020
smsfadviser.com.au

 


David Forrest Download David's Adviser Profile

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.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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

Michelle Forrest

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.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

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Darren Chalk Download Darren's Adviser Profile

Darren Chalk

Financial Adviser
B Com, Dip FP

Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.

Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.

With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.

Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.

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

Natasha Bartlett

Natasha Bartlett

Client Service Manager

Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.

Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.

Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.

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Kelly Collins

Kelly Collins

Client Service Manager

Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.

On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.

Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.

Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.

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Jasmine Smith

Jasmine Smith

Client Service Manager

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.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

Jasmine has gained her Certificate III in Financial Services qualification.

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Merrilyn Smith

Merrilyn Smith

Client Service Manager

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.

Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.

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