Australian executor trustees senior technical manager Julie Steed said that, when discussing pensions and estate planning with clients, it’s very important to think about what money will be leaving the super system.
“If we’re going to have excess amounts, do we really want to be holding insurance in super anymore? We may want it outside of super where we can direct it straight through to our estate plans through testamentary discretionary trusts that we can control,” Ms Steed explained at the Chartered Accountants Australia and New Zealand SMSF Day 2019 Workshop.
“Most parents, when faced with the choice between tax efficiency and control for their adolescent children, will nearly always choose control over tax efficiency.”
Ms Steed said that if the deceased has a transfer balance account at any time prior to their death, then the child death benefit amount will be the child’s share of the retirement phase pension accounts.
“So, if I started a retirement phase pension on 1 July 2017 with $1.6 million, and it’s grown to $2 million by the time I die, and I’ve got a single child, my child can receive $2 million as a death benefit pension, even though that’s $400,000 above the general transfer balance cap,” she explained.
Importantly, the process and formula with the child cap increment, she said, also applies to accumulation accounts.
“This means that my children can have zero amounts out of my accumulation accounts. So, if I’ve got $2 million in pension phase, and $3 million in accumulation phase, and I’ve got two children and they’re getting 50 per cent each, they can each have $1 million of my retirement phase pension, but the $1.5 million for each child in my accumulation accounts will have to come out of super,” she said.
“This is really important when thinking about starting retirement phase pension accounts.”
Ms Steed said that if the deceased had no transfer balance account, then the child cap increment is pro-rated to their proportion of the deceased’s total benefit, and insurance proceeds can be included in the deceased’s total benefit.
“I worked with an adviser last year who had a client that was in her 40s and had a really aggressive form of Parkinson’s disease. It was terminal, but her life expectancy was still 10 years. So, she didn’t qualify under terminal illness payments, but she qualified under total and permanent disability (TPD),” Ms Steed said.
“She had $120,000 in accumulated benefits and $1 million worth of insurance. She heard about the benefits of tax-free investment returns in pension phase and she wanted to maximise her benefit, so she was going to start a TPD pension with her $120,000. Now, fortunately she went and got financial advice, because if she hadn’t, she would have started that pension for $120,000.”
Unfortunately, the client did die much sooner than anticipated, only a couple of weeks after the insurance amount was actually received in the super fund for TPD.
“Now if she had started a retirement phase pension with her $120,000, each of her two children would have only been able to start a death benefit pension for $60,000 each. They would have each had $500,000 rattling around outside of super,” she said.
“Her adviser stopped her from starting the retirement phase pension and so she just left the TPD benefit in accumulation phase and it was unrestricted non-preserved, so she could access some of that money she needed for living. But when the $1 million of insurance came in, her kids were actually able to start a death benefit pension for $550,000 each.”
Ms Steed said the big issue wasn’t so much the tax consequences of that money leaving super, but rather the control issues of that money leaving the super fund.
25 June 2019
For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.
Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.
Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:
Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.
Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.
Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.
George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).
Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.
Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.
She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.
Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.
Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.
Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.
He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.
Paul's professional qualifications are:
Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.
Client Services Manager
Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.
Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.
He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.
Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.
Jenny is a University of New South Wales graduate who joined the team as an Administration Assistant. She is keen to put her customer service and organisational skills to use, making sure day to day operations run as smoothly as possible.
Outside of work, Jenny focuses her efforts on karate and ice hockey. She can often be found coaching and practicing karate at her alma mater. The rest of her time is spent at one of Sydney’s many ice rinks playing, practicing, or officiating ice hockey.
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