As the saying goes where there’s a Will there’s a way! When it comes to leaving things for your family it needs to be a smart Will, otherwise, the tax man could end up being your largest beneficiary.
“Family succession planning is a strategy to control the way your estate is passed onto your beneficiaries in the most financially efficient and tax-effective way possible,” says Matthew McCabe.
Smarter than the average Will
Having a Will is a good first step but it may not be enough to ensure your assets are passed on in the most tax-effective manner. This is why including a trust as part of the Will is becoming an increasingly popular option.
Testamentary trusts are discretionary, which means the person you appoint as trustee can distribute the income and assets of the trust in a way they believe is in the best interests of your beneficiaries.
“If your trustee is financially savvy, they can make the most of the family’s tax-free income each year,” says McCabe.
One way to do this is to split income from the trust to take advantage of beneficiaries’ tax-free thresholds.
“If a beneficiary has children or grandchildren under 18 years of age then distributions from testamentary trusts can be taxed very favourably,” says McCabe.
“A testamentary trust can also give your husband or wife control over how to distribute your assets effectively for stamp duty and capital gains tax (CGT) purposes,” says McCabe.
For example, if you leave a block of land to your husband or wife directly in your Will and they want to pass it on to the children or grandchildren, CGT and stamp duty will be payable. However, if you make your husband or wife Trustee of a testamentary trust, they will have control over your assets without owning them. This means they may be able to pass the block of land onto any of your beneficiaries directly from the trust and obtain stamp duty and CGT advantages.
Whether a testamentary trust will be best for you will depend on your individual circumstances and how you want to leave your assets. A financial adviser can help you make the right choice for you and your family.
Life insurance and super are generally not covered in a Will but are important to consider in your overall family succession plan.
“Keep in mind super benefits are taxed differently depending on who they are paid to so you might want to allocate super to one beneficiary and non-super assets to another, to avoid unnecessary tax, “ says McCabe.
For example, children under eighteen are considered financially dependent on you and can receive a lump sum from your super tax-free. Whereas children over 18 will pay lump sum tax of up to 32% (including the Medicare levy) on any lump sum they receive from superannuation unless they are in an interdependency relationship with you.
“The laws are continually changing so it can be a good idea to continually seek advice,” says McCabe.
A financial adviser can advise your family on who is best to receive your superannuation after you die; and make arrangements to speak to the appropriate professionals to make your wishes clear.
Don’t go it alone
Family succession planning is a complicated issue and everyone’s situation is different. Seeking financial advice will help your final wishes to be met, and your intended beneficiaries end up with most of your money, not the tax man, creditors, unintended parties e.g. former spouse, at risk beneficiaries such as persons with drug or gambling issues, or a person with mental incapacity.
For further information, contact your Judge Adviser on 02 4032 7934.
This editorial does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. The information in this editorial is not tax advice and you should refer to your tax specialist with any questions. We recommend you obtain professional financial advice specific to your circumstances.
*Matthew McCabe is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429.