SMSF trustees looking to pay a death benefit using an in-specie asset should not assume this will be a simple arrangement, but rather it may deplete any money paid to other beneficiaries, a superannuation legal expert has noted.
DBA Lawyers senior associate William Fettes said it was often assumed when death benefits were divided between multiple beneficiaries and some of them paid via in-specie assets, the split was clean and easy to calculate as part of a binding death benefit nomination (BDBN).
Speaking during a recent briefing by his firm, Fettes refuted this was the case, adding: “I want to warn everyone that a wish to deal with an in-specie asset [as a death benefit] is more complex than you might think if you haven’t ventilated all the points.
“It’s definitely not something that you can do on a bog-standard template. It needs to be carefully considered,” he noted.
He provided a scenario of a father who plans to direct his death benefits to his wife and son, with the latter receiving an in-specie asset.
“In this case, the son is an adult and independent child and the super death benefit is $2 million, while the property is worth $1.5 million and 80 per cent of the super is taxable,” he said.
“What am I really doing there when I say the son will get the property and the wife will get the balance? It’s not as simple as $1.5 million to the son and $500,000 to the wife, which you think it might be at a gut level.”
He noted there would be a tax liability of $150,000 on the net capital gain of the property on its transfer to the son and a further $204,000 tax payable by him on the death benefit as he was not a tax dependant in this scenario.
“You can see it’s not as simple as you might think. While the wife initially gets $500,000, she actually gets quite a lot less as the taxes could come out of her share without clarity on the drafting within the BDBN,” he said.
“I want to plant that seed that directing the trustee to pay out an asset may not be simple and I haven’t even really covered stamp duty and other things that come into it.”
