Newsletter - Special September Edition
Blended Families and Estate Planning
Cents & Sensibility | Tax News | Views | Clues
Whilst all families can experience estate planning issues, blended families are exposed to additional elements.
What is a Blended Family?
A blended family has many different looks: from a couple and the children they have together, as well as their children from previous relationships to step-parents looking after their step-children. Blended families are common in Australia, with 10% of families classified as stepfamilies or blended families. If you are in a blended family situation, you are encouraged to seek advice about your estate planning. The collaboration of experts in both law and accounting will ensure your assets are safely protected.
Having worked with Kalus Kenny Intelex (KKI) for several years, knp has been exposed firsthand to how this process can be more effective and efficient if you are proactive in your planning. Kimi Shah, Josephine Sergi and Lisa George from KKI have authored an article focusing on ‘Blended Families and Family Trusts’.
Ali Roshan, knp’s in house Senior Financial Adviser, has written an article on the influence Superannuation can have on a blended family.
If you have any queries or would like to get in contact, please reach out to your knp adviser.
Blended Families and Family Trusts – KKI (Kimi Shah, Josephine Sergi and Lisa George)
A way assets can be protected is through the use of trusts. Family discretionary trusts have become a popular vehicle to protect assets and stream family income to benefit from different tax margins of each of the family members.
If you are a part of a blended family, it is important to consider who falls within the class of general beneficiaries under the terms of the trust deed.
General beneficiaries in a family discretionary trust usually include spouses and children of the specified beneficiary of the trust fund.
It is important to pay attention to the defined terms in the deed to see whether former spouses, de- facto partners, stepchildren and adopted children fall within the meaning of general beneficiaries.
Depending on your wishes, you may wish to broaden or restrict the classes of people that would form part of the pool of general beneficiaries in your Will or trust.
It is prudent to obtain legal advice before executing any changes, appointments or exclusions in your trust deed to ensure that the changes are made validly.
Family discretionary trusts are also a useful way of holding property on behalf of children to protect the property in the event of a separation. It is important to seek specialised family law advice to understand exactly how property held by a family discretionary trust might be treated in the event of separation, to ensure the intention is what in fact occurs.
How does Superannuation influence a Blended Family? (Ali Roshan – knp in-house Financial Adviser)
A common misconception is that superannuation is dealt with by your Will. However, this is not the case. Your personal estate and superannuation are managed independently and therefore, updating just your Will may lead to areas of confusion and concern.
The Difference between your Will and Superannuation
Your Will is a formal document that outlines what is to happen to property and possessions in your personal name when you die. However, the general position with superannuation funds is the trustee will have the discretion to distribute your ‘death benefit’ to one or more of your dependants (discussed below). Your superannuation may allow you the opportunity to nominate which of your dependants should benefit from your superfund on your passing.
What are the Different Types of Nominations?
The beneficiary nominations will either be Binding or Non-Binding. A binding nomination allows you to advise the trustee of who will receive the superannuation benefits when you pass away. Depending on the terms of the trust deed, binding nominations will likely lapse after three years and become invalid if not renewed.
On the other hand, non-binding nominations communicate your intentions to a trustee who will use it as a guide to determine your intended beneficiaries. The trustee retains the discretion to pay your death benefit in accordance with the non-binding nomination. Essentially, the trustee will hold the ability to alter the distribution across your dependants.
Blended families can create multi-level complications when considering preferences between your beneficiaries. It is essential that you update your nominations to properly reflect your current intentions, meaning your preferred dependants will receive the benefit.
knp can help you with the nomination process and can offer you assistance to make sure your preferences are updated. Please contact your knp adviser if you require professional assistance in determining what nomination is best for your circumstances and how you can efficiently update your beneficiaries.
How can Tax impact different Beneficiaries?
Once you have understood how superannuation can influence a blended family and its impact on your Will, it is equally important to recognise the tax implications for your beneficiaries. Beneficiaries incur different tax rates depending on several factors. For example, the nominated beneficiary must be considered a financial dependant under the relevant tax law to receive proceeds of superannuation tax free. Dependants include:
- your spouse or de facto spouse (of any sex).
- a former spouse or de facto spouse (of any sex).
- a child of the deceased (under 18 years old).
- a person who has an interdependency relationship with you.
- any other person dependant on you.
If the beneficiary does not qualify under the above requirements, they will be required to pay tax on the taxable component and/or untaxed component of the super benefits received, which is 17% &/or 32% respectively.