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Interdependent Relationships in Estate Planning

Protecting family estates from hefty tax bills can be challenging, however there are little known concessions that can save beneficiaries tens of thousands of dollars in liability.

Many people make the mistake of not fully accounting for the relationship between superannuation and estate planning when drafting their wills.

Estates with large payments from a superannuation fund can incur significant tax bills when benefits are distributed from the estate to adult beneficiaries who are not dependents. This can result in a taxation payment of 17% on the taxed element and 32 per cent on the untaxed element.

However, few people are aware of the existence of a small concession relating to interdependent relationships and its potential to significantly reduce a family estate’s taxation liability.

The concession provides for two people – whether or not they are family – to have an interdependency if they have a close personal relationship; they live together; one or each of them provides the other with financial support, domestic support and/or personal care. If it can be determined that this condition is satisfied, then the beneficiary receiving the superannuation benefit does not pay tax.

In Practice

As an example of the advantages of the concession, an $800,000 family estate was recently saved from a $100,000 tax liability after an interdependent relationship was proven for an adult son who moved into his terminally ill Mother’s home to care for her. His caring role included paying bills, cooking meals, shopping, driving her to medical appointments and other related support.

With this concession is mind, McKinley Plowman’s head of Superannuation Ian Gath was able to help the family in choosing which components of the estate to distribute to the different beneficiaries. As a consequence, we were able to maximise the benefits of the concession with regards to interdependent relationships and the family was saved a $100,000 tax liability.

This often overlooked concession in estate planning can be unnecessarily costly for family estates. The bottom line is that advisers and beneficiaries must be aware of this.

If you have any queries at all about estate planning or SMSFs, contact McKinley Plowman on 9301 2200 or visit www.mckinleyplowman.com.au.

written by:

McKinley Plowman