Transferring assets to surviving family members requires careful planning to ensure tax efficiency,
legal compliance, and the protection of wealth for future generations. This white paper examines
key considerations when transferring assets to a surviving spouse and children, including taxation
implications and practical advantages and disadvantages of various strategies.
Gifting Money to Children Before Death
Advantages
- Immediate financial support for children, allowing them to invest, pay off debt, or fund
major expenses. - Potential reduction in the value of the estate, which may minimize estate-related taxes and
legal complications.
Disadvantages - Loss of control over the assets, as they legally belong to the recipient once transferred.
- Potential impact on government benefits such as the Age Pension, where large gifts may
affect asset and income tests.
Taxation Implications - No direct gift tax in Australia, but gifting can impact tax obligations, such as the deprivation
rule for Centrelink benefits. - Capital Gains Tax (CGT) implications if gifting assets other than cash.
- No tax deductions for the giver; recipients may face tax consequences on income generated
from gifted assets.
Preparing a Will for Asset Transfer After Death
Advantages
- Provides clear legal instructions, reducing the risk of disputes.
- Helps structure tax-effective transfers of assets to beneficiaries.
Disadvantages - Probate process can be time-consuming and costly.
- Risk of challenges from disgruntled beneficiaries or creditors.
Taxation Implications - Beneficiaries inherit assets at the deceased’s cost base, potentially deferring CGT.
- Superannuation benefits paid to non-dependent adult children attract death benefits tax of
up to 17%.
Testamentary Trusts
Advantages
- Asset protection from creditors, bankruptcy, or divorce settlements.
- Potential tax savings, as trust income can be distributed to minors at adult tax rates.
Disadvantages - Requires ongoing management and compliance.
- Costs associated with legal and accounting services.
Taxation Implications - Tax benefits when distributing income to beneficiaries on lower tax rates.
- CGT event upon transfer of assets into the trust unless structured correctly.
Transferring Investment Assets to an Australian Resident Company
Advantages
- Lower corporate tax rate compared to personal marginal tax rates.
- Limited liability and structured asset protection.
Disadvantages - Setup and ongoing compliance costs.
- Potential double taxation when profits are distributed as dividends.
Taxation Implications - CGT rollover relief may apply for transfers meeting specific conditions.
- Company pays tax at the corporate rate (currently 25%-30%).
Transferring Assets to a Family Discretionary Trust
Advantages
- Flexibility in distributing income among family members for tax benefits.
- Protection of assets from external claims.
Disadvantages
- Complex tax and legal requirements.
Potential trust loss rules affecting tax deductions.
Taxation Implications
- Trusts do not pay tax; instead, beneficiaries are taxed on distributions.
- Division 7A considerations if the trust loans money to beneficiaries.
Superannuation Death Benefits
Taxation Implications
- Tax-free if paid to a dependent (e.g., surviving spouse).
- Taxable at 15%-17% if paid to non-dependent adult children.
Strategies for Minimising Tax Liability
- Withdrawal and Re-Contribution Strategy: Withdraw and re-contribute funds to reset as a
tax-free component. - Superannuation Proceeds Trust: Directing benefits through a testamentary trust to optimize
tax outcomes.
Importance of Transferring Assets at Market Value
- Ensures compliance with Australian Taxation Office (ATO) regulations and avoids penalties.
- CGT and stamp duty considerations when assets are undervalued.
- Helps maintain fairness in estate distribution.
Conclusion
Effective asset transfer planning is crucial to minimising tax liabilities and protecting family wealth.
Individuals should seek professional financial and legal advice to tailor asset transfer strategies that
align with their financial objectives and family circumstances.
References
Australian Taxation Office (ATO) Guidelines
Superannuation Industry (Supervision) Act 1993
Succession Law and Estate Planning Regulations in Australia
Should you require further information about accessing your superannuation please feel free to
contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an
obligation-free appointment.
The information in this document does not consider your personal objectives, financial situation or needs, so you should consider its appropriateness regarding these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision, and it is recommended that you seek assistance from your financial adviser.