This presentation describes the key issues that SMSF accountants should be aware of in relation to Insurance and Death

1. WHAT SMSF ACCOUNTANTS
NEED TO KNOW ABOUT
INSURANCE AND DEATH
November 2014
Greg Einfeld
1

2. “The only certainties in life
are death and taxes”

3. Establishing a fund – insurance issues
Buying property in super – insurance issues
Death of a member – tax issues
Death of a member – payment of benefit
Conclusion
3
Agenda

4. Establishing a fund
4

5. Establishing a fund
5

6. Establishing a fund
6

7. Which super fund
has the most members?

8. Establishing a fund
8
2 million members
$75 billion assets
200,000 employers

9. Establishing a fund
9

10. CONCLUSIONS
1. Your client may will lose lose their their insurance
insurance
when they commence an SMSF
2. Your client will blame you if they
lose their insurance

11. Establishing a fund – insurance issues
Buying property in super – insurance issues
Death of a member – tax issues
Death of a member – payment of benefit
Conclusion
11
Agenda

12. Buying property in super
12
ASSETS LIABILITIES
Property 600,000 John 100,000
Mary 100,000
Loan 400,000
Total 600,000 Total 600,000
What happens if John dies?

13. The SMSF owned insurance policies
Policy # Owner Life Insured Sum Insured Premiums deducted from
1 SMSF John 1,000,000 John’s A/C
2 SMSF Mary 1,000,000 Mary’s A/C

14. Buying property in super
$100K + $1m
14
ASSETS LIABILITIES
Property 600,000 John 1,100,000
Cash 1,000,000 Mary 100,000
Loan 400,000
Total 1,600,000 Total 1,600,000
Houghston, we still have a problem

15. So what is the alternative?

16. Buying property in super
Policy # Owner Life Insured Sum Insured Premiums deducted from
1 SMSF John 1,000,000 John’s A/C
2 SMSF Mary 1,000,000 Mary’s A/C
3 SMSF John 100,000 Mary’s A/C
4 SMSF Mary 100,000 John’s A/C

17. 17
ASSETS LIABILITIES
Property 600,000 John 1,100,000
Cash 1,100,000 Mary 200,000
Loan 400,000
Total 1,700,000 Total 1,700,000
Note: premium not deductible
$100K + $100K
Buying property in super

18. IMPLICATIONS
1. Accountants should work closely
with financial advisers
2. Carefully consider which account
premiums are deducted from.
3. Record minutes as further
supporting evidence.

19. What if the property is leased
to a business operated
by Mary and/or John?

20. CONCLUSIONS
1. Your client may need to sell their
SMSF property if one member dies
2. Normal insurance structures don’t
solve the problem
3. Your client will blame you if they
lose their property

21. Establishing a fund – insurance issues
Buying property in super – insurance issues
Death of a member – tax issues
Death of a member – payment of benefit
Conclusion
21
Agenda

22. Tax Components
22

23. Tax components – insurance claim
Premiums paid from
reversionary pension
Pension components
remain fixed
Premiums paid from
non-reversionary pension
Premiums paid from
accumulation
23
Insurance claim
goes into taxable
component

24. Tax components
Taxable (taxed) = Death x past service - tax free
Component benefit past service + future service component
24
Taxable (untaxed) = Death - tax free - Taxable (taxed)
Component benefit component component

25. Tax on lump sum death benefit
Recipient Tax Free Taxable - taxed Taxable - untaxed
Spouse
(tax dependants)
Note: excludes Medicare Levy
Nil Nil Nil
Adult child
(tax non-dependants)
Nil 15% 30%
Levy, lump sum withdrawal is a lifetime limit
25

26. Taxation of income stream benefit
Withdrawal type Tax Free Taxable - taxed
Age <60 Age 60+
Lump Sum withdrawal Nil
1st $185K: Nil
Balance: 15%
Nil
Regular Pension withdrawal Nil MTR – 15% Nil
Note: Excludes Medicare Levy, lump sum withdrawal is a lifetime limit.
This is a simplification and represents the most common scenarios only.
26

27. CONCLUSIONS
1. Ensure tax and components are
calculated correctly upon death –
both at a fund and member level
2. Your client can’t blame you once
they are dead. But they might
smile at you from heaven 

28. Establishing a fund – insurance issues
Buying property in super – insurance issues
Death of a member – tax issues
Death of a member – payment of benefit
Conclusion
28
Agenda

29. Payment of death benefit
Who controls the fund?
Is there a valid binding nomination?
Is there a reversionary pension?
Can a pension be commenced?
Should a pension be commenced?
29

30. Payment of death benefit
Who controls the fund?
Is there a valid binding nomination?
30

31. 31
Control
Trust Deed
Will
Share
Certificate
Constitution

32. Signed

2 witnesses

3 year shelf life

32
Binding nomination

33. Binding nomination
33
Mr Katz
Linda Grossman
Daughter
MrXs Katz
Daniel Katz
Son

34. Binding nomination
34
Mr Katz
Trustee (individual)
Member
$1m in super
Non-binding nomination: 50/50 split
Linda Grossman
Daughter
Trustee (individual)
Daniel Katz
Son

35. Payment of death benefit - questions
Who controls the fund?
Is there a valid binding nomination?
Is there a reversionary pension?
Can a pension benefit be commenced?
35

36. What type of benefit can be paid?
Lump Sum
(SIS dependant)
Pension
(Tax dependant)
Spouse (incl. de facto) Yes Yes
Former spouse No Yes
Child (<18) Yes Yes
Child (>18) Yes No
Disabled child (any age) Yes Yes
Financially dependent Yes Yes
Estate Yes No
36

37. Payment of death benefit - questions
Who controls the fund?
Is there a valid binding nomination?
Is there a reversionary pension?
Can a pension benefit be commenced?
Should a pension be commenced?
37

38. Payment of death benefit
38
Is the
beneficiary
> 60?
Do they
need
the cash?
Yes
No
Pension
No
Yes
Pension
Lump Sum

39. Death Benefit – administrative issues
Payment of lump sum death benefit
As soon as practicable
Maximum 2 instalments
Notify ASIC and ATO
Remove deceased as director/trustee
Remove deceased as member
Possibly wind up fund
39

40. CONCLUSIONS
1. Make sure you consider all the
issues outlined
2. Your client will blame you if they
receive a penalty from the ATO

41. Establishing a fund – insurance issues
Buying property in super – insurance issues
Death of a member – tax issues
Death of a member – payment of benefit
Concluding comments
41
Agenda

42. Getting things right
is important.
If you don’t get it right then you risk
being blamed by your clients or having
a penalty imposed by the ATO.

43. UPCOMING WEBINAR
Date: Tuesday 25 November
Time: 10:30 am
Topic: 5 simple tips to save
lots of tax using pensions
Register at www.limeactuarial.com.au/content/2/webinar
43

44. Bonus offer
Free Actuarial Certificate
Valued at $110.
Email greg@limeactuarial.com.au today.
Valid until 31 January 2015. Limit 1 per business.
44

45. limeactuarial.com.au
1300 546 300
45
greg@limeactuarial.com.au

46. contact details
46