Understanding tax in your estate planning


Putting a plan in place in case something unexpected happens is an important step when it comes to protecting your assets and creating peace of mind for your loved ones. Although it may seem challenging to discuss these subjects, estate planning should be viewed as an integral part of your overall financial plan.

Tax is a major consideration when it comes to planning your estate and the distribution of your assets. You can minimise the taxes that your beneficiaries will pay in the event of your death by using an effective estate planning tax strategy. A strong governance of the tax aspects of estate administration can also help to manage the risks.

Testamentary trusts:
A well-governed testamentary trust can help to protect your assets and ensure that tax outcomes are achieved in cases of complex family legal disputes such as bankruptcy and divorce. They are trusts established under a valid will, with certain provisions operating like a trust deed. A trustee of a testamentary trust will properly understand the tax profile of potential beneficiaries, maintain proper trust account records, and fully documents capital gains tax (CGT) events and other concessions claimed. There may need to be a high level of cooperation between family members and the trustee to ensure that necessary tax and other financial information is shared for the trust to operate effectively.

Capital Gains Tax:
The tax obligations faced by your beneficiaries will vary depending on the assets they receive. CGT rules apply to the transfer of any CGT assets from a deceased estate. CGT is only charged on the disposal of an asset, so will not apply to a beneficiary who receives an asset, however, they will be liable for CGT if they later decide to sell.

Superannuation and death benefits:
Ensure that you understand the tax implications of estate planning and superannuation, such as the tax impact of distributions made under a binding death nomination. Assets held by a person in their superannuation fund are not automatically included in their estate. Therefore, the absence of a binding death benefit nomination means that the trustee has the discretion to pay the superannuation benefits of the deceased to any of their dependents, and of deferring tax consequences. It is good practice to regularly review the need for any nominations to ensure that your superannuation benefits will be passed on to the chosen beneficiaries.

Your estate plan should be tailored specifically for your needs and your family’s situation, ensuring the distribution of your assets in a way that is tax effective. For further information on how your assets will be taxed and on creating a strategy that is best for you, consult your financial advisor.


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