Assets passed on using a testamentary trust?

Hi all

I will attempt to ask this question, but it probably won't make sense and I am guessing that if it does make sense that I won't be able to make sense of any of the replies, here goes.

Assuming a couple who are aged in their late 60's/early 70's own some property outside of super such as a ppor and a couple of investment properties and they also own a number of properties inside an SMSF and the value of the properties in the smsf totals around $10 million. On the passing of both of these people I am guessing that the beneficiaries may be liable for some taxes such as CGT?

Is it true that if the properties inside the SMSF are passed on in a testamentary trust that it will save the beneficiary a lot of money in CGT and/or other taxes?

Regards,

alicudi

 

Ultimately there will be tax to pay.

More info is needed - are the couple taking pensions from the SMSF and is it 100% or less tax free?

 

Hi

Yes the couple are using the rent from all of the investment properties to live off in their retirement, they are in pension mode. As per the new super rules that came out 01/07/17 part of the income from the SMSF is tax free and then the large majority of the income from the SMSF is subject to 15% tax.

Regards,

alicudi

 

Most sensible answer is probably “it depends”.

Financial advice for the specific circumstances should be sought.
Marg

 

I'd hazard a guess that ultimately, non-dependent adult children would be subject to 15% however this may be affected by the treatment of the testementary trust. So NFI.

If the members die at different times, then there'll a couple of different outcomes depending upon the terms of their wills however when the first passes, the assets in the SMSF may need to be divided to settle the will/as per a binding nomination of the SMSF.

Legal & financial advice should be sought.

 

no and no

When someone dies this is not a CGT or stamp duty trigger. Title can pass to the executor then to the trusteee and then to the beneficiary without CGT. It will only trigger CGT if it is transferred by the beneficiary to someone else.

With a SMSF a person or member cannot leave assets of the SMSF via their will. All they can do is to arrange for their death benefits to be paid to their estate and then out via their will. But they cannot leave specific assets. However if their death benefits is enough then the trustee of the SMSF could potentially make an inspecie transfer by transferring a property valued at say $1mil to the beneficiary instead of selling the property and transferring $1mil.

Incidently you should have a sub trust in the TDT so the super can be segregated - a Superannuation Proceeds Trust - otherwise the super will be taxed because it could go to a non-dependant.

 

Definitely a sign of a need for specific financial advice.

1. SMSF assets arent estate assets, but may be. The death of member A may leave assets to member B in some cases which preserves and protects the SMSF from having to sell assets to pay a death benefit. But in some cases A dies then all their balance may need to be cashed up and pay out. Depends on many issues incl if reversionary pensions are being paid. Death does not normally mean A's balance goes to B.
2. When B dies however all fund assets will have to be sold except in rare cases.
3. How are SMSF member benefits to be paid out - Death benefits ? In most cases child beneficiaries will have some tax to pay. Taxed element in the fund is taxable whether directly paid or through an estate.
4. CGT would be triggered in the SMSF on death reducing the benefits to pay. Rate may be as low as an effective 10%. or as much as 15%. Even if both members had a pension prior to death. With $10m of property the tax free portion may be lost. Assume 10% CGT. Net of tax the fund would be cashed up and a death benefit to the legal personal representative unless there is a binding death nomination that is valid.
5. All property outside super would pass to TT if that is the case. This defers CGT and means no beneficiary inherits

Only strategy failing is both members cant be solely pension members if super property is $10m. So loads of tax and estate planning issues occur. And both members need to have reversionary pensions and binding death nominations. The death benefits will need to be cashed likely when A or B dies. Cant defer the issue. With $10m of property the 30 June 2017 one-off smsf CGT election should have been chosen. This may protect a large amount of CGT up to that date.

Typically a testamentary trust wont include super assets unless it is planned for and legal advice should be obtained for BOTH members. Of course the issue of ageing and how incapacity affects the super fund etc should also be explored. SMSFs can be a terrible vehicle for older people...Who will manage the smsf ?

 

Agree that specific tax advice for your situation is required.

For properties outside the SMSF, there will not be a CGT taxing event on death, only on the sale or transfer by the beneficiary. There would be a CGT exemption for the main residence if sold within two years of the date of death.

Planning and specific advice is key.

 

There may be a CGT exemption.....Many conditions. One is tax residency of the beneficiary OR executors. The main residence and CGT changes before Parliament (Senate and no proposed changes ) strip CGT concessions otherwise. A LPR who is non-resident can also be a concern. I know a new will drafted last week that had to consider that problem. You dont want a LPR (or a co-LPR) who is non-resident.

Many people have assumed that the two years was a safe call. All it takes is a citizen beneficiary who is out of the country and its nasty. Wide ranging effects.

 

I was answering the example given, not every possible scenario under the sun.

 

Oh....your post wasnt that evident. The 2 year issue is a tax issue after all. Goes to show how personal tax advice is important.