Structuring Life Insurance Insurance is a financial product and only licensed financial planners can advise on financial products - such as should I take out insurance, how much should I insure for. But lawyers can advise on the taxation and estate planning aspects. Most people give little thought to insurance other than knowing they ‘have it’ and that it is ‘in super’. Some know or think that their spouse will get the proceeds after death, others don’t know. Where the owner of the life insurance policy is a superannuation fund: The premiums are tax deductible The proceeds are exempt (or disregarded) to the superfund from CGT, Item 5 of s 118-300 of ITAA 1997 http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.300.html The proceeds will need to be paid out of the superfund There may be tax on the payment of the proceeds depending who receives it. Because payment is made to the fund it is superannuation proceeds. Superannuation proceeds can only be paid to 2 classes of people related to a deceased person: A dependant, or The legal personal representative (LPR = the estate) If insurance is paid to the deceased’s LPR it will pass in accordance with the will of the deceased, or if there is no valid will it will pass according to the intestacy laws. Therefore if you want to get your life insurance held inside super to someone who is not a dependant, such as a parent, it must be paid to the estate (LPR) and then it can paid out via the will. Once the super is passing via a will the terms of the will can mean it will be paid to a superannuation proceeds trust which is a testamentary trust holding just the super proceeds. The terms of this trust can then allow the trustee to invest the proceeds with the income distributed to the beneficiaries who would be dependants for tax purposes. Minor children, who would be classed as dependants, could take the super directly, with no tax payable. But a large sum of money could end up in their hands. It could be invested by a trustee until they are 18, but once they are 18 they can call on the money and then spend it all. Once invested it could be set up so the children receive the income and are taxed at adult rates, s102AG ITAA1936. Alternatively it could be made to pass to the estate and then to a super proceeds trust. The beneficiaries of the trust can be restricted to the children who are dependants and the trust would then get the funds tax free. The children can also receive the income taxed at adult rates under s102AG. But you can then restrict the terms of the trust, to control it from the grave, so the children do not take the money directly when they are 18. The trust can be kept going. This will provide ongoing tax savings and also good asset protection from bankruptcy and some asset protection against family law disputes. Specialised legal advise is needed in this area - and it is a good idea to get financial advice as well. Often life insurance will be the major assets of a person in death so it is very important.