I’m in my early eighties and recently added a downsizer payment to my superannuation account, which is in pension mode. The sum in total is well under the $1.7 million threshold. Is the downsizer amount treated exactly as is the other money with regard to mandatory annual draw-downs and taxation after my death?
Just be aware that there is no $1.7 million limit on how much can be accumulated in pension mode – it’s the maximum that can be transferred to it. After you have made the transfer it’s fine if it goes above that. The downsizer contribution is a non-concessional contribution and as such would not have been added to your pension account – it should now sit in a separate accumulation account.
If you leave it there, which you are entitled to, you will pay 15 per cent tax on earnings within the fund, but there will be no mandatory drawdowns. If you decide to move it to pension mode it will become a tax-free fund with the required minimum drawdowns each year. The death tax applies only to the taxable component of your super left to a non-dependent. The whole of your downsizer payment would be non-taxable, but its earnings will form part of the taxable component.
We are now 70 and have a daughter who is 42 and has lived with a disability. She is in the NDIS scheme and on a disability pension. She has never been in a superannuation scheme and has next to no savings. She has a four-year-old daughter. We will leave her money in our will, which we need to rewrite, and she will inherit half of our house. Five years ago, we took money out of our super and bought her a little house under the government shared equity scheme.
How can we ensure that she does not lose her disability pension after we die? Do we leave instructions to pay off her $30,000 mortgage on her house as well as buy out the government share? Then should we set her up in a superannuation scheme? If we willed the majority of her inheritance into her super scheme and paid off her house, would that ensure that she would safely get her disability pension until she was 55 or older? If the executor just puts her inheritance in the bank she is at risk of being exploited by others. We investigated a trust, but it was far too expensive to run. Fortunately, she has an intelligent and caring brother, our executor, who would look after her needs.
Elder Lawyer Brian Herd tells me that this is a complex issue that cannot be adequately and confidently addressed without lots more information. However, in very general terms, one of the effective ways to protect a disabled person in respect to preserving their pension and protecting them against being exploited is the use of a Special Disability Trust. The parents can set this up now while they are alive or in their wills.