How many of us here in Australia love paying taxes? I am yet to meet one person.
How many Australians are aware of the different tax consequences within Life Insurance policies? Unfortunately not too many.
Not knowing the advantages and disadvantages of the different types of policy ownership and the importance of structuring your beneficiaries correctly can lead not only to unnecessary taxes for the beneficiaries, but also needless exposure of those insurance proceeds.
Kerry Packer once famously quoted at a Senate print media enquiry:
“I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read because, as a Government, I can tell you you’re not spending it that well that we should be donating extra”.
As consumers we are bombarded with information on social media, the internet, television and radio advertising, or even on the backs of buses as we sit in traffic. We can’t escape it and sometimes it can feel like information overload, so when we receive the inevitable phone call from the telemarketer informing us that we can obtain $1,000,000 life insurance simply by answering six easy questions then it just seems like the perfect, simple solution doesn’t it (assuming that we needed the insurance in the first place)?
What about just ticking the insurance option box on your Industry Superannuation member form – simple right?
Before purchasing your life insurance policy you need to know what ownership choices you have, what options you have in regards to beneficiary nominations, and what the advantages and disadvantages of those options are particularly from taxation and asset exposure points of view.
Ownership options include:
- Owning the policy in your own name;
- Your spouse or life/business partner could own your policy;
- A superannuation fund could own your policy;
- A trust or company could own your policy.
Beneficiary options include:
- Pay the proceeds as a lump sum into your spouse’s and/or children’s personal names;
- Pay the proceeds directly to the owner (e.g. a discretionary trust or company);
- Pay the proceeds as a lump sum into your estate via your legal personal representative;
- Pay superannuation death benefit pensions to your financial dependants; or
- A combination of any/all of the above.
The ideal outcome for families who are grieving the loss of a loved one is one where
- there are sufficient funds to extinguish debt, pay for final expenses and to cover any other ancillary or unexpected costs (e.g. medical, legal etc.);
- the insurance proceeds are protected from creditors, bankruptcy and/or future relationship breakdowns;
- income from those proceeds is able to be distributed to beneficiaries (including minor children) in a tax-effective manner to cover ongoing living costs, education, a nanny/housekeeper, grief counselling etc.;
The right advice ensures full asset protection, maximum income and minimum tax for the family, and all achieved in a cost-effective manner.
Craig is the developer of The Allocator software and he teaches Financial Planners, Risk Advisers and Accountants right around Australia how to structure their client’s insurances to achieve the optimum outcome at the point of claim. Craig’s expertise in Estate Planning has ensured that families all over the country have saved literally millions of dollars in unnecessary hidden death taxes.