Friday, August 26th, 2011
Death duties in your SMSF
Your SMSF can trigger a sizable tax bill on death if not strategically managed.
The problem is more acute if the SMSF has one or two bulky assets such as property.
If the property is a commercial property from which the family business operates and the intention was to retain it for the surviving members – the problem can be even greater if the surviving members don’t have a balance equal to the property value.
Insurance in the SMSF on the lives of the mother and father may solve this problem in some cases.
On death the tax free status of pensions ceases if there is no reversionary beneficiary so when an asset is sold to pay a lump sum death benefit, the fund itself will be liable for tax on any capital gain – 15 per cent if the asset has been held for less than 12 months and 10 per cent if the asset has been held for more than 12 months.
Managing the fund to minimise or eliminate this ‘death duty’ in the fund is much easier where the fund comprises liquid assets such as shares and when the maximum in any one asset is maintained at a prudent 10 per cent. If you are in the pension phase and have shares that have grown in value through the years you will be advised to realise some of these gains from time to time as part of a regular review of your investment portfolio to reduce or eliminate potential CGT liability to the fund, bearing in mind capital losses over the life of the fund are recorded and applied when assessing the CGT on death.
Further strategic management must be applied where your beneficiaries are not dependants under the tax act. This relates to the money that was concessionally contributed to the super fund. And if the death benefit has a life insrance component, then tax can be up to 31.5 per cent.
Yes. There are strategies available to manage and minimise this tax. If your fund has a significant taxable component call Segue to learn how you can minimise this tax while protecting your assets from one generation to the next.
