We often see many tax issues arise from Deceased Estates which could be avoided if planning was undertaken before the Will was written.
1. Leaving 100% to your partner
Often when talking to people about their Will I am advised that the first part is easy as it is to each other. The challenge here is if you have had your affairs structured in a manner to ensure that you are eligible for perhaps the Pension or a reduced amount of income being earned in your personal name, when you received your partners share of assets and income you are then over the thresholds.
2. Not Keeping Your Will up to Date
It has been said that the only certainties in life are Death and Taxes.
It is important that your estate planning affairs be reviewed professionally on a regular basis. Every purchase or sale of an asset will have ‘estate planning’ ramifications, every change in tax laws could have an effect on your estate planning taxation strategies and so on.
For these and many other reasons change can undermine your estate plan unless a review process is put in place.
3. Assets left in Will which do not form part of your Will
The following assets don’t form part of your Will:
– Assets owned as Joint Tenants
– Assets held by a Trust or Company aren’t legally your Individual assets to distribute
– Your Superannuation Account
– Proceeds from Life Insurance Policies
(For further information relating to this please refer to our Blog “What Assets your Will doesn’t protect”)
4. Death tax
People think that since Death Duties no longer apply that their estate will not be subject to tax. The fact is that significant levels of tax can and do still apply to deceased estates.
In 1981 Death taxes state-wide and federally were abolished. However taxes on lump sum superannuation payouts was introduced in 1983 as was capital gains tax introduced in 1985.
Capital Gains Tax – the back door death duty
This is one of the issues that is often missed when planning distribution of estate assets. One of the biggest issues is that beneficiaries do not know what the original cost base of an asset is which could result in a higher amount of tax payable. There are lots of options available to structure estates to minimise capital gains tax but also to ensure that the estate is distributed in a fair manner.
Lump Sum Superannuation Tax
If your Superannuation is being directed to someone other than a spouse or dependant then prepare yourself for a tax shock – up to 47% of your Superannuation death benefits could be lost in tax. The reason for this is that Superannuation Tax laws treat a payment of your Superannuation death benefits as an ETP – in much the same way as it would treat you if you withdrew your entire super while you were alive. The average rate of tax applicable to Superannuation money left to non-dependent children can vary between 16.5% and 31.5% but can be as high as 47%.
However all is not lost – with proper planning your affairs can be structured during your lifetime, it is possible to eliminate or reduce ETP tax.
5. Considering tax status of beneficiaries
Beneficiaries financial and tax situation are more relevant in modern society than in the past. It is important to consider the following:
– Beneficiaries living overseas and the tax consequence of an inheritance
– Beneficiaries who may have been bankrupt and the consequence of inheritance
– Beneficiaries who may be going through a family separation