SUPER GRIP ON INHERITANCE

Superannuation is an easy and effective way to control the distribution of an inheritance.

Some super clients (who have a super coach) make provisions in their wills to drip-feed inheritances to young beneficiaries, in an attempt to stop the money being squandered. Even those whose assets are little more than a suburban home and superannuation could greatly assist their families by taking a similar approach.

Some parents and grandparents arrange for their assets to be inherited in instalments when their beneficiaries reach 18, 25 and 30. This approach can provide beneficiaries with another chance if they lose part of their inheritance through high living or poor investments.

Superannuation is a highly tax-effective and straightforward means of handing down money over a long period. Consider making a binding death-benefit nomination with a super fund, if permitted, for children to inherit the super as pensions. A fund's trust deed may also permit pensions that cannot be commuted to lump sums at any time, or until beneficiaries reach nominated ages.

Such strategies are usually carried out through Self-Managed Funds, which have better flexibility. Superannuation death benefits paid to dependants of deceased fund members are tax-effective for two reasons:

• Lump sums paid directly to dependants from the deceased's accumulated benefits are tax-free up to the deceased's pension reasonable benefit limit, or RBL. (The indexed 2005-06 RBL is $1,297,886). To the extent that the lump sum is funded from undeducted or after-tax contributions, there is no tax.

• Pensions paid to beneficiaries over 18 are taxed at their marginal rates with a tax rebate of up to 15% and with the amounts subject to the beneficiaries' RBLs. If the beneficiaries are under 18, the pensions are taxed at standard adult marginal rates with a full 15% tax rebate - and are not counted towards the beneficiaries' RBLs.

In practical terms, for a drip-feed policy, beneficiaries might receive, for example, their concessionally taxed pension up to age 21, and then a tax-free lump sum. For example, a widower who makes a binding death-benefit nomination for his three children to receive a pension until 25, which will then commute to lump sums.

Tony Martin - Director Advantage One
                      Strategic Financial Coach

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