SMSF and Inheritance
You’ve most probably heard tons of different things about starting a self-managed superannuation fund and how that can help you in your retirement years. And as much as all that is true, what happens to all your money once you have passed away? You always have the option of ensuring that your children inherit the money that you worked so hard to save up, which they can later use to establish their own independent financial identity or they can save up that amount for the sake of their children’s (your grandchildren’s) education. No matter what happens to that money, you know that as long as your children inherit it, it will be put to some use or another to improve their lives.
Ensuring that your children inherit your fund
More so than passing on the funds to their children, many retirees are more worried about their children having to pay taxes on what they inherit. If the children fall under the category of dependents, then they can easily inherit the money without needing to pay taxes, but for children that are non-dependents, it’s a different story altogether. If the child is a non-dependent and ends up inheriting the funds, then he/she will have to pay 15% taxes as well as Medicare.
The sources of a taxable super are investment earning and contributions that are taxed in a concessional manner during the accumulation period of the superannuation. A part of the concessional treatment remains if and only if the death benefit is inherited by a non-dependent. On the other hand, the dependent won’t have to pay any taxes.
This is a contrast with a super that is tax-free, as its sources are after-tax contributions which occur during the accumulation phase. These are not taxed when they pay out to either a non-dependent or dependent as death benefits.
Using that inheritance wisely
If a non-dependent inherits the cash, he/she can easily direct it towards something that would improve or enhance his/her life in one way or another. He/she can, for instance, save up that money for his/her children’s education, or if they money isn’t used for educational purposes, and then they can always save it up in their emergency funds for their children or ensure that their children inherit it instead.
There are many things that one can do with this money, and spending it for the sake of the future generation just seems like the best solution in this case. It will, after all, ensure that the grandchildren of the original fund owner would have safe and secure futures or a good education. That is, this is in the case that the non-dependent does not require the money.
The same can be said for a dependent who may inherit the cash. After all, they have the greater advantage of not having to pay taxes on their inheritance, so they might as well use it to improve their lives for the better and to live a financially independent life.
For more information on SMSF and inheritance, check out http://www.afr.com/personal-finance/how-to-reduce-tax-on-an-smsf-inheritance-20140121-iy81c