What is Estate and Tax Planning?

Divorce, ageing and death each have unique taxation implications.  Even bankruptcy has its own set of tax and superannuation circumstances.  So, what planning is required for when a person passes away?

Many people think that all accountants, financial planners and lawyers are experts in estate and tax planning. While most lawyers could put together a simple Will, few have the training and additional skills to advise on sophisticated estate planning strategies.  Financial advisors usual scope of work does not extend far enough in dealing with tax planning simply because they are not tax agents and it’s beyond their scope. Most times their statements of advice include a disclaimer on tax and estate planning issues.

An estate plan is prepared during a person’s lifetime that sets a strategy for when that person passes away.  This strategy should be planned to give the most efficient after tax results besides setting out who are to benefit financially.   For those people who have their own self-managed superannuation fund (“SMSF”) estate planning is a fundamental component and is the one most often neglected by advisers to trustees of SMSFs.  It is wrong to assume that all advisers have a good understanding of estate planning and superannuation.  As we are often approached for referrals to estate planning experts so we formed an alliance with specialist lawyers and financial planners to fill that niche. Helron’s consulting methodology ensures a caring and professional services are provided from within the group of experts that enables clients to feel comfortable in the knowledge that their needs are taken care of in the context of their own superannuation fund or SMSF.

There is no short cut to getting expert advice.

Getting your estate planning affairs in order is so much more than just getting a Will signed. Before you begin the process of documenting your Will the following actions need to be undertaken with the help of a specialist accountant:

  • Your asset position needs to be carefully researched (to work out who owns what and what will be the Capital Gains Tax implications).
  • Ensuring that the SMSF is compliant with legislation and regulations.  If not, it could become liable to tax at 45% of the fund’s assets.
  • your Superannuation fund trust deed needs to be examined and consideration given to the most appropriate form of dealing with the death benefits,
  • your insurance arrangements need to be looked at to ensure that insurance is held in the most tax appropriate way with emphasis on policies owned by SMSFs,
  • your income tax position and that of any tax structures (companies, trusts, partnerships) holding your wealth needs to be identified, examined and valued.
  • the taxation circumstances and asset protection needs of your beneficiaries needs to be professionally considered.
  • Ensuring that all tax returns have been completed accurately and lodgements are up to date.
  • Identifying all debts and liabilities including the ATO.

Only after all of the above steps have been completed can it be assured that your Will and other estate documentation will do what you want them to do effectively.

5 Serious Mistakes most people make with their estate planning affairs…..

Mistake No: 1

Most people think that signing a simple Will is all that they need to do to effectively arrange their estate planning affairs. They wrongly assume that their Will automatically controls the distribution of all their wealth on their death.

For many people their superannuation account balance and any insurance proceeds attached to their super represents their second largest asset after their home. Most people are shocked to learn that their Will does not necessarily direct what happens to their superannuation on death.

The main reason for this is that the Will is governed by state legislation whereas superannuation is governed by federal legislation.

Unless you have made specific arrangements, the trustees of the superannuation fund have the initial power to direct where your superannuation death benefits are paid.

Death benefits from a deceased estate are paid to beneficiaries and death benefits from superannuation are paid to dependents. (See below)

Mistake No: 2

People think that since death duties no longer apply that their estate will not be subject to tax. The fact is that significant levels of tax could apply long after a person has died.  Death duties, Federal and State, were abolished in 1981.  That was great, but Capital Gains Tax was introduced in 1985.

Capital Gains Tax is the back door to death duty.

Mistake No: 3

Many people think that estate planning is not necessary or doesn’t apply to them or they don’t care.   Very often consideration needs to be given where there are minors, blended families, step children, children who are disabled, business owners and so on. What happens when a person is seriously ill or is not of sound mind or is unable to manage ones affairs? Who then makes the decisions?

Mistake No: 4

People generally are neglectful on keeping precise records. They think that once their Will is prepared that they can forget about it. Keeping your estate planning affairs up to date is vital if the right result is to be secured. Records need to be kept, reviews need to be carried out and your estate planning strategies revisited regularly.  Income tax affairs must be squeaky clean and up to date. Tax records must be kept without relying on the accountant.  Differentiate between assets owned individually and those assets owned by the superannuation fund.

Please contact us for a copy of our Asset Register forms that will help you with your record keeping.

Mistake No: 5

The worst mistake that people make in relation to bringing order and structure to their estate planning affairs is to put it off and to think that it can wait.

The Peace of Mind that comes from having everything in proper order.

A common feature for people putting this off is fee resistance for paying a specialist to help with estate planning. This mistake could cost a lot of unnecessary tax.

The knowledge that all estate planning affairs are in complete order is a great comfort for most people and their families. Proper planning, regular review, access to good ongoing specialist advice and the exercise of care in keeping records relieves most people of the burden or worry and provides great peace of mind for the whole family.

Binding Death Nominations and Your Superannuation.

There is a general misconception that individuals can make provisions in their Wills as to where the payment of their superannuation benefits will be made as at the time of their death.

This is a misconception and is totally wrong.

An individual can only make provision in their Will for assets that they own in their own name as at the date of their death.

All superannuation funds are trusts. The trustee of the Fund holds the benefits of the superannuation assets on behalf of the members. So, the members of a superannuation fund do not own their superannuation benefits in their own name.

The only way that a superannuant can make provision in their Will for the payment of their death benefits is to make sure that those benefits are paid to their estate by completing specific documentation. Once it is an asset of the estate then the Will can direct where the death benefits are paid.  Tax implications always need to be considered.

Who can receive the death benefits from a superannuation fund?

Unlike your Will where the inheritance is paid to beneficiaries, death benefits from superannuation have to be paid to dependents.  Broadly speaking, dependents are in turn classed as either a “financial dependent’ or “non financial dependent”.  There are different tax implications for each group.

Who is a “financial dependent”?

Broadly speaking, a financial dependent, for the purposes of tax free payment of superannuation death benefits includes:

  • The spouse or de facto partner of the deceased.
  • Any child of the deceased who is under the age of 18 years or a child under the age 25 and undertaking full time schooling.
  • A disabled child of any age.
  • There are other groups of people that will fall into this category but for the sake of simplicity are not discussed here.

By default, everyone else is a non financial dependent and death benefits will be taxed at either 0% or 15% plus Medicare levy, depending upon the components within the death benefit payment.

What can a member of a superannuation fund do?

So how can a member of a superannuation fund make provisions directing where their superannuation death benefits are to be paid? These are some of the options available:

  • A binding death nomination (“BDN”) is one answer to the planning.
  • Another strategy is to use an SMSF Will.  (In addition to the ordinary Will.)
  • A reversionary pension payable to a financial dependent where the deceased member was receiving a regular income stream.
  • When all else fails, it will be left to the trustees to determine who will receive the superannuation fund death benefits.  Remember that these superannuation benefits cannot automatically be bequeathed to ordinary beneficiaries so the trustees will end up having huge authority.

Ultimately, the estate planning exercise must in the first instance be tax driven to achieve the best after tax results with the specialist accountant acting as the ‘project manager’ with the lawyers and financial planners contributing their skills to the exercise.


Please note the information on this website is not advice and cannot be relied upon but is purely a check list to take to your professional adviser when seeking expert opinion.

Only a solicitor is authorised to draw up legal documents that includes binding death nominations, Wills, SMSF Wills etc.