The essentials of death and taxes

There’s two things in life that are certain….death and taxes!  We all hate paying tax when we’re alive, so why don’t we consider the tax implications of our superannuation after we die?  After all we’ve all worked hard to accumulate our retirement nest egg.  Many people simply don’t consider tax after death an important issue, however it can soon become critical to the people you leave behind. 

I see many pensions that have been incorrectly setup or don’t consider the impact these could have if a member of a SMSF dies.  I believe careful consideration should be given to whether a pension should be a ‘reversionary’ pension for the member.  By not using a reversionary pension, upon the death of a member the fund reverts back to accumulation mode.  If the fund has non cash assets and needs to sell these to payout the death benefit of the member, there may be capital gains made on various assets.  As the fund will no longer be in pension phase, there could be considerable capital gains tax to pay on these asset sales to fund paying a death benefit.  This could be avoided if a reversionary pension is used.  Obviously every situation needs to be viewed separately.  However the above highlights the importance of ensuring your SMSF has considered the surviving members after your death.

There are other issues and corresponding strategies available to minimize tax for your loved ones.  However I consider the first step you need to make is to actually sit down and realize you need an estate plan.

Kim Jay CA – Director