With approximately 2,500 new Self-Managed Super Funds (SMSFs) being set up every month with an average balance of $454,000*, thousands of SMSF owners could be unwittingly saddling their beneficiaries with an unexpected tax liability that could amount to tens of thousands of dollars, Lifeplan Funds Management warns.
National Adviser Solutions Manager, Alison Massey, says “Many investors and their advisers are unaware of this death duty in disguise which could add up to a significant portion of the capital.”
“There is a misconception that only income is taxed, but the capital value of the entire death benefit paid to the beneficiary may be subject to tax, so beneficiaries receive an unexpected tax liability when funds are paid out.”
Those most affected are self managed super funds that have reached the pension phase of paying out funds to support fund members. While SMSFs are exempt from Capital Gains Tax (CGT), these exemptions immediately cease when the last member in the fund dies.
“Super is not designed for intergenerational wealth transfer, and investors and their advisers should consider the implications of Capital Gains Tax applying to funds in a SMSF,” Ms Massey says.
Until now, a testamentary trust has been a way investors have tackled this problem, adding complexity and expense to estate planning.
Ms Massey says that Lifeplan has created a break-through structure that is not only cost effective and simple, it eliminates the surprise ‘death duty’ that applies to funds transferred to non-dependents from a SMSF.
By eliminating the surprise ‘death duty’, Lifeplan’s NextGen Investments also solves the issue for beneficiaries of how to fund the tax liability if assets are held by the SMSF thereby not requiring a forced realisation of assets.
Massey claims no other investment structure in Australia offers investors the ability to not only transfer wealth tax free to nominated beneficiaries, but also the control mechanisms to stipulate exactly what the investor intends for each beneficiary.
* Figures from SPAA (Self-Managed Super Fund Professionals’ Association of Australia) as at July 2009
About Lifeplan.
Lifeplan is an Adelaide-based specialist retail funds management organisation and market leader in the investment bond market. It offers tax advantaged investment bonds for specific purposes, such as those saving for their children’s education, underwriting funeral; expenses, or passing wealth on to the next generation
Through steady growth Lifeplan is now the largest provider of investment bonds in Australia with over $1.5 billion in total assets and funds under management.
Lifeplan aims to provide investors with unique investment strategies by applying specialist knowledge and innovative thinking to understand and plan for their changing needs.
For further information please contact :
Matt Walsh - General Manager, Specialised Products | Head of Lifeplan
Email: matt.walsh@lifeplan.com.au
20/07/2009
