• Serendipity Team

3 ways super can protect your legacy

Family legacies can take on many forms. They can be family traditions, heirlooms, secret recipes, or even beliefs and behaviours that get passed on from one generation to the next. While some of these can be harder to preserve than others, there is a lot you can do to protect your financial legacy – and the super system is a vehicle that can help you do just that.

While you may be used to thinking of your super in terms of funding your lifestyle in retirement, it also has several other uses that often go underutilised. In this article, we will look at how you can better use your super, not just to plan your retirement, but as a tool to protect your legacy.

Protection from challenges to the estate

There is nothing quite like the death of a family member to cause family arguments to erupt, especially when it comes to money. These arguments can lead to the terms of your will being challenged in court by people who believe they have not been adequately provided for and could result in changes to the way your assets are distributed.

The benefit of superannuation in this instance is that super typically sits outside of your estate. This means that it does not automatically get distributed in accordance with your will, and therefore cannot be contested.

Although it is possible to arrange that your super does go to your estate, you can also arrange for it to be paid directly to one or more eligible dependents such as:

  • your spouse or partner

  • your children (of any age)

  • someone who is in an interdependent relationship with you or

  • someone who is financially dependent on you when you die

Providing that you have lodged a valid binding death benefit nomination form with your super fund, your super will be distributed according to your wishes. This usually cannot be changed or overturned by the Courts.

Tax savings

As the old saying goes, there are only two guarantees in life: death and taxes. One of the key benefits of superannuation is that it is subject to a number of tax concessions. The less you and your beneficiaries pay in tax, the more of your wealth is preserved for the benefit of future generations.

Some of the tax savings that you can access through super are as follows:

Reduced tax rate on investment earnings during accumulation phase

Once you earn over the tax-free threshold, the tax you pay on any investments held in your name can be anywhere from 19 to 45 percent, depending on your income. And while investing through a company structure can keep the tax rate capped at 25 to 30 percent, it is hard to beat the 15 percent tax rate paid on any earnings made inside your super fund.

Income tax savings on pre-tax contributions

You can also reduce your income tax by making pre-tax (also known as salary sacrifice) contributions to your super fund. This means that the tax payable on those amounts will be 15%, rather than the higher personal income tax rate applicable to you. You just need to be careful that your employer and salary sacrifice contributions don’t exceed the annual concessional contributions cap for the financial year.

Tax-free income during pension phase

Once you reach retirement age, the investment earnings on your super become tax-free, up to a limit of $1.6 million.

Capital gains tax discounts on sale of a business

If you sell your business in the lead up to retirement and put the proceeds into your super fund, you may be eligible for a range of tax concessions which can mean that you pay significantly less tax on the profit from the sale.

Super recontribution

When super is passed on to adult non-dependent children, they will generally be liable to pay tax on the taxable portion of your super. A super recontribution strategy allows you to withdraw a portion of your super and recontribute it back in, enabling you to move that portion of your super from the “taxable” to the “non-taxable” bucket. The more money you have in the non-taxable bucket, the less tax your adult children will have to pay on their inheritance.

Protection from bankruptcy

Although we often think it won’t happen to us, the threat of bankruptcy can emerge through any number of unexpected life events such as:

  • financial abuse

  • relationship breakdown

  • an investment or business venture gone bad

  • job loss

  • serious illness or accident

If you find yourself facing bankruptcy, you may be required to sell or use some of your assets (such as your car, home, savings and investments) to repay your creditors, unless those assets are protected from bankruptcy. One asset that is usually protected from bankruptcy is superannuation, providing that:

  • the funds are held with a regulated super fund or public sector superannuation scheme and

  • the assets weren’t transferred into your super fund in an effort to protect them from impending bankruptcy

When it comes to growing your family’s wealth, superannuation can offer many long-term benefits in terms of tax savings and asset protection. However, these rules are prone to change on a regular basis and can be complex. Deciding how much to invest via your super is a decision that needs to be carefully made by factoring in the rules and conditions that accompany the super system and weighing these up against the risks and benefits that come with keeping your investments outside super.

As your financial advisors we can help you navigate the ever-changing landscape so that you can make an informed decision - one that will support you with achieving your short and long-term financial goals.

Talk to us at Serendipity Wealth, we can help simplify your end-of-financial-year preparations and assist you with your financial planning advice.

What you need to know

This information is provided and produced by Serendipity Wealth Advisors. The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation, or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product. Information in this document is based on current regulatory requirements and laws, as of 1 June 2022, which may be subject to change.