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Insurance structure

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Mark Laszczuk, 13th Nov, 2008.

  1. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    I'm in the process of organising my life insurance and want to try and get it structured in the most tax effective way. Situation is thus:

    - no wife/kids, will never have wife/kids (please no 'never say never' type comments - it's straight up not going to happen)
    - have testamentary trust set up for my niece (and any future nieces/nephews)
    - life insurance is currently set up to be paid to the estate to pay out debt and assets to be kept for the welfare of said niece

    What concerns me is the tax treatment of the life insurance based on the above. Will the ATO view the payout as taxable if the insurance goes to the trust, even if the trust has been clearly set up for the benefit of a minor? Does the provision for a payout being tax free if paid to a child under the age of 18 apply if the child is not mine?

    Just to add another spanner into the works, what happens if said child is living overseas? If the payout is taxable, does anyone have any suggestions as to how it could best be structured? I was thinking as an alternative to put my niece as beneficiary, then my brother could gift the money to the trust to pay out the loans associated with the assets or just use the money to pay out the loans or whatever.

    Mark
     
  2. Young Gun

    Young Gun Guest

    from my knowledge...

    Death benefits paid from a superfund to a spouse, defacto (can be same sex), child under the age of 18 and a financial dependent are tax free.

    However as your neice doesn't seem to fall under these categories she will be taxed in the following way.

    Tax free Element = 0%
    Taxed Element = 16.5%
    Untaxed = 31.5% (untaxed funds are quite rare, some govt supers are untaxed).

    However if the life cover is held outside of superannuation these rules don't apply and she could get a lump sum taxfree.

    General rule of thumb is that if you can claim a tax deduction for the insurance premiums the benefits will generally be taxable. If you can't claim a tax deduction then the benefits are generally tax free.

    The easiest and most cost effectient way to tackle this problem is to simply apply for more life cover via your super fund. so if need $1 Million apply for $1,200,000. (1M / (1-0.165)).

    I did a quick quote for $1M & $1.2M worth of cover for a 40 year old at standard rates.

    $1M outside super = $75.05 pm = $900.6 pa
    $1.2M inside super = $88.69 pm = $1,064 pa*

    *After tax (@31.5%) = $728.84
     
  3. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Thanks YG. I've already applied for more insurance than is needed. I'm not super concerned about the whole exercise, I just hate the idea of the Govt. stealing from my niece and want the structure to be as efficient as possible. Afterall, if things go according to plan, she won't be getting the assets for a looooooooooooong time and by then, all loans will have been paid off and I won't have any life insurance cover anyway.

    But you never know what's around the corner, especially since I have to deal with insane car drivers - who think they are a law unto themselves - everyday when I walk to and run home from work.

    Mark