Managing Superannuation Death Benefits

Transcription

1 Managing Superannuation Death Benefits August 2017

2 Important information This material has been prepared for financial advisers only. It is not intended that it be presented to or used by retail investors. The Lifeplan Investment Bond is issued by Lifeplan Australia Friendly Society Limited (Lifeplan) ABN AFSL The information contained in this presentation does not take into account the specific investment objectives, financial situation or needs of any particular investor. It is recommended that appropriate and independent professional advice be obtained before making any decision based on the information presented. Please refer to the current Product Disclosure Statement (PDS) for product details available at australianunity.com.au/wealth We do not give tax or legal advice. The information contained in this presentation is based on our interpretation and general understanding of the relevant tax, life insurance and other laws/guidelines applicable at the time of its production. The application of tax laws depends on the investor s circumstances. Tax law and estate planning can be both complex and different in their application to individual circumstances. Advisers should seek their own taxation and legal advice. Examples are based on certain assumptions detailed at each example and current laws and guidelines. Changes to any of these would change the outcomes and no guarantees are provided that outcomes noted will be achieved. Property of the Australian Unity Group, all rights reserved. Not to be reproduced without permission 2 MANAGING SUPERANNUATION DEATH BENEFITS

3 Super changes are here!

4 The reality $1.6m cap on funds transferred to tax free pension account $25,000 annual concessional contribution cap for all $100,000 non-concessional cap for all Super contributions tax increased to 30% for salaries > $250,000 p.a. The newly defined objective of super Removal of anti-detriment provisions *Source: 4 MANAGING SUPERANNUATION DEATH BENEFITS

5 The reality $1.6m cap on funds transferred to tax free pension account $25,000 annual concessional contribution cap for all $100,000 non-concessional cap for all Super contributions tax increased to 30% for salaries > $250,000 p.a. The newly defined objective of super Removal of anti-detriment provisions *Source: 5 MANAGING SUPERANNUATION DEATH BENEFITS

6 A great investment alternative 6 MANAGING SUPERANNUATION DEATH BENEFITS

7 The opportunity

8 Current strategic opportunities Removal of anti-detriment provisions Beneficiary taxation consequences: SIS vs ATO Maximise value of wealth transfer Controlled wind-up for SMSF s whilst maintaining lifestyle Appropriate for retail super/pension members as well as SMSF 8 MANAGING SUPERANNUATION DEATH BENEFITS

9 Case Study

10 The scenario SMSF established in 1997 Current Value Purchase Value Property $1.0m $0.50m Cash $0.2m $0.10m Shares $0.4m $0.25m TOTAL $1.6m $0.85m No tax free component 10 MANAGING SUPERANNUATION DEATH BENEFITS

11 Case Study: John Sole member widowed - Aged 83 - Rapidly failing health Adult non-dependant beneficiaries Estimated annual returns net of taxes/fees: % ABP - Investment bond 5.25% (capped at max 30%) - Drawing minimum PVF Current year - $112,000 p.a. 11 LIFEPLAN RETIREMENT FUNDING Assumptive returns - Gross return 7.5% - ABP return (tax free) 7.50% - Super (accum. 15% tax) 6.35% - Inv bond (30% tax) 5.25%

12 Comparative outcome EOY1 Cash out and invest in Lifeplan Inv Bond Retained SMSF Opening Balance $1,600,000 $1,600,000 Plus: $120,000 Less: Required Drawing (ABP min PVF) $112,000 $112,000 Closing Balance EOY1 $1,572,000 $1,608,000 Less: Tax on Death* Nil $273,360 Distribution Balance to benefit $1,572,000 $1,334,640 Strategic advantage = $237,360 or 17.8% $ 237,360 / $36,000 = 6.6 years break-even point * 15% tax plus 2% MCL

13 Comparative outcome EOY1 Cash out and invest in Lifeplan Inv Bond Retained SMSF Opening Balance $1,600,000 $1,600,000 Plus: $120,000 Less: Required Drawing (ABP min PVF) $112,000 $112,000 Closing Balance EOY1 $1,572,000 $1,608,000 Less: Tax on Death* Nil $273,360 Distribution Balance to benefit $1,572,000 $1,334,640 Strategic advantage = $237,360 or 17.8% $ 237,360 / $36,000 = 6.6 years break-even point * 15% tax plus 2% MCL

14 Enhancing outcomes Year 1 25% Super 0-45% * Year 2 10% Year 3 10% Investment Bond Etc. 14 MANAGING SUPERANNUATION DEATH BENEFITS

15 Enhancing outcomes Use optimum market opportunities to realise SMSF assets Maximise time within a nil tax environment Use 125% rule to add to investment bond Minimise death benefits tax Years 125% Rule Maximum Additional Contribution 15 MANAGING SUPERANNUATION DEATH BENEFITS

16 Summary Income requirements can be maintained utilising the investment bond without any personal tax liability SMSF can be wound up taking advantage of: Zero tax environment Market opportunities Capital access maintained within the investment bond Wealth transfer value maximised to non-dependant beneficiaries 16 MANAGING SUPERANNUATION DEATH BENEFITS

17 Did you know Investment Bonds can be structured to be a non-estate asset. INSURANCE CONTRACTS ACT 1984 SECT 48A Policy for the benefit of third party beneficiary (1) The following paragraphs have effect in relation to a contract of life insurance to the extent that the contract expressed for the benefit of a third party beneficiary (who may be the life insured): (a) (b) The third party beneficiary has a right to recover from the insurer any money that becomes payable under the contract even though the third party beneficiary is not a party to the contract; If the third party beneficiary is not the life insured, any money paid to the third party beneficiary under the contract does not form part of the estate of the life insured

18 Beneficiary feature Simple wealth transfer: Tax free death benefit to any beneficiary Non estate asset - bypasses Will and Probate Non contestable 1 Provide a legacy Wealth transfer feature provides: Tax free lump sum Lifeplan Investment Bond Wealth Preserver (Wealth Preserver) An income stream Deferred lump sum Combination 1. NSW Family Provision Act and the three year notional estate provisions.

19 What is Lifeplan Wealth Preserver? Certainty and control An income established in the name of the beneficiary on the death of the last investor The tax free lump sum automatically creates a new investment An income stream (term or lifetime) Deferred lump sum Combination

20 Opportunities Non-dependent super beneficiaries Young, vulnerable or weak Blended families Alienated family members Minimise estate challenges Engage with the next generation of clients

21 Change our thinking

22 Other strategies

23 Strategy 1: TTTR True Transition To Retirement Concern Wealth accumulated outside super Choice of retirement date vs preservation age/condition of release Work/life balance more time to stop and smell the roses Caps and constant rule changes Outcome Tax efficient income; reduced ATI and associated levies Peripheral entitlements maximised or retained Estate planning opportunities Consider Investment Bond to commence a concessionally taxed income stream Investment Bond to build complementary wealth to super. 23 MANAGING SUPERANNUATION DEATH BENEFITS

24 Strategy 2: The tax efficient Family Trust Concern Substantial cash holdings within Family Trusts Adult members with incomes in excess of $37,000 Trust income must be distributed but not needed by members Who want to have greater control over distributions from the Trust Complexity Consider Investment Bond held within the Discretionary/Family Trust Outcome Tax efficient income Reduced tax and levies Entitlements maximised 24 MANAGING SUPERANNUATION DEATH BENEFITS

25 Strategy 3: Child Bonds Concern Provide a gift to a young child at a future date: Protect from other family members Minimise potential tax when gift occurs Premature death of the owner Outcome Held in Trust for the child: Protected for benefit of child Legal capacity passes to child Vests without any tax consequences Investor is assured the child will receive the gift Consider An Investment Bond under child advancement rules: Ownership transfers (vests) when child reaches a nominated age Death of the investor does not disrupt their wishes 25 MANAGING SUPERANNUATION DEATH BENEFITS

26 Strategy 4: Maximised Gearing efficiency Concern Where to invest surplus annual income? Paying down debt dilutes the interest cost deductibility Investing surplus funds potentially increases taxable income How to eventually repay debt without CGT consequences Consider Invest surplus income within Investment Bond to quarantine earnings from ATI Outcome ATI is further reduced as investment earnings are quarantined within Bond Tax deductibility of gearing strategy maximised Tax free Investment Bond lump sum after 10 years can be used to repay debt Reduced or Nil CGT as investment asset may not need to be sold in part or full 26 RETIREMENT FUNDING 26

27 Strategy 5: Accumulating a home loan deposit Concern Average age of first home buyer is 38* Where to build wealth to be used as a house deposit over med-long term. Time horizon suitable for GROWTH risk profile vs CGT consequences at time of later wdl. Low MTR at commencement of strategy vs High MTR at time of wdl (CGT consequences?) Outcome Withdrawals after 10 years are non assessable for tax Withdrawals pre 10 years are concessionally taxed with rebate No CGT consequences for investor Investment income not added to ATI: FTB A & B HECS HELP Consider Investment Bond to build home loan deposit funds *ING sourced data RETIREMENT FUNDING 27

28 Resources

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30 Further information: advisers.lifeplan.com.au 30 MANAGING SUPERANNUATION DEATH BENEFITS

31 Thank you.

32 Contact Name Area Phone Adam Kirk National Manager Distribution Greg Bird National Business Development Manager Colin Falls Business Development Manager NSW/ACT James Torrens Business Development Manager NSW/ACT Ron Grima Business Development Manager QLD Ryan Francis Business Development Manager WA/NT Paul Bugg Business Development Manager VIC/TAS Michelle Kaminski Business Development Manager SA Think different. Partner with specialised businesses that improve your access to knowledge and innovation. 32