DYING is bad for your health, and can also do some unpleasant things to your family’s wealth. While the impact of an unexpected death for young families is obvious, older Australians can also suffer financially on several fronts when their partner dies.
Knowing the rules, and how to work around them, is the key to leaving as much money as possible for loved ones.
More than a dozen major countries have death taxes, but not Australia. However, if you die without a dependant, such as a spouse, much of the money paid out from your superannuation can be slugged with a 17 percent tax. “Most people call it a pseudo-death tax – there’s no other way to describe it really,” said Hewison private wealth managing director Andrew Hewison.
“If you have all your wealth in super with a large taxable component paid out to a non-dependant,
15 percent tax plus the Medicare levy is going to be deducted.”
Mr Hewison said this made super a tricky estate planning tool. However, there are strategies available to some over-60s to withdraw their super then put it back as a nontaxable contribution.
Almost 80 percent of retirees receive a full or part age pension, and with the single rate set at about two-thirds of the couple’s rate, the death of a spouse delivers an instant household income cut.
“The age pension for a single person is $907.60 a fortnight – it’s not a lot of money,” Mr Hewison said.
Another big impact comes from lower means test thresholds for singles compared with couples.
Planning for Prosperity senior adviser Bob Budreika said dying was bad financially for pensioners’ partners.
“The biggest problem is when the spouse dies, the assets test limit goes down,” he said.
Strategies to solve the pension assets test squeeze are limited but may include gifting money to relatives, spending on something such as an overseas holiday, or upgrading your home – the
only asset that’s exempt from Centrelink testing. None seem palatable to many retirees.
Mr Budreika said it was common for one member of a couple to be more actively managing the money, and if they died first there was often trouble for the survivor. “It’s a pretty dangerous position to be in,” he said. “Even though one person may be more passive, at least have a broad overview and understanding.”
Mr Hewison said people of all ages should understand where their family income came from, ensure their wills and wider estate plans were up to date, and seek professional advice where needed.
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Source: MONEYSAVERHQ Anthony Keane 26 Feb 2018