How to reduce the amount the ATO gets paid from your superannuation when you die
No one consciously puts the ATO in their will or nominates them as a beneficiary in their superannuation fund - but by default, the ATO is an indirect beneficiary of most Australian's superannuation funds. If structured correctly however, the amount your superannuation pays the ATO can be lowered.
"If you have surplus assets, the most common method of transferring wealth without paying excessive amounts to the ATO is lending money at favourable terms to the ones you wish to receive the funds".
Here are 3 top tips:
1) Gift a portion of your superannuation out before you pass away
There's the clear benefit of seeing your inheritance enjoyed by your loved ones. Whether it's spent on a once in a lifetime holiday with the extended family, a grandchild's exchange year for university or a larger home for your children and grandchildren to live in, however it's spent, you get too see it now, rather than from the restricted viewing six feet underground.
From the ATO’s perspective, if the money is left in superannuation and paid out after you die, then most often they take 15% plus the Medicare surcharge. That's $15,000 for every $100,000 left in superannuation after you die.
For most superannuation funds in pension phase (generally those over 65 years of age) money can be taken out tax-free.
When you have the money in your hands, you can do what you want with it - without the ATO touching it.
2) Consider a Family-Friendly Loan
Funds from superannuation can be taken at a tax-free rate, and be loaned to a loved one on friendly and favourable terms.
Such a structure is set up with a written loan agreement that enables the benefit of the asset (property, money etc.) to be used now (often by children), but owes the lender (often parents) for the value of the asset.
If the parents face unexpected costs later in life, such as health issues, aged care or family relationships change, they have the option of calling up the debt or charging interest.
You can decide if the loan is to be counted as an asset in your will, or whether it is to be forgiven when you die.
3) Pre-Capital Gain Tax evaporation
There are not many assets left that are still held on CGT-free terms (bought before 20 September 1985), however those that are can lose their pre-CGT after the date of death. This means any further gains after the death are taxable. This is a delicate area, so worth seeking further assistance if you have eligible pre-CGT assets.
It's worth noting that:
a) Your superannuation is not your will - unless you specifically set it up that way.
This is because you don't own or control your superannuation - the assets in superannuation are held in trust for you. Whereas your will, or estate, is only for the assets that you own.
b) This area of financial and taxation advice is complicated. Transferring funds and assets can impact Centrelink and Pension payments as well as personal taxation issues – seek specialised taxation advice.
c) This is not personal advice and is no substitute for seeking a tailored approach to address your unique circumstances. For personal tailored advice, seek out an adviser who has specific knowledge of this area.