How can I secure my superannuation and estate before major surgery?

Q. I am recently retired and about to undergo major neck surgery and while the prognosis is reasonably positive, there is a risk that I might not survive or I could be permanently incapacitated.

I have been trying to get all my documents in place but I am confused about the options available for my superannuation funds.

Prior to death at any age over 18, your estate and personal affairs can be managed using three key documents.

While the documents will vary from state to state, the underlying principles remain the same.

An Enduring Power of Attorney allows you to appoint one or two people to manage your financial affairs. You can attach conditions and appoint up to two substitutes to cover most circumstances.

Lifestyle and personal decisions such as medical and accommodation decision making powers can be assigned through an Enduring Power of Guardianship. Again, up to two people can be appointed and they could be the same people listed in the EPA.

The final document is an Advanced Health Directive and allows you to specify what medical treatment you prefer and in effect, supersedes any decisions your guardians might make using the EPG. Again, depending on which state you live in.

All of these documents can be usually be downloaded for free via Offices such as the Public Advocate or Guardian or perhaps through your state’s Ministry of Justice or Legal affairs.

At the moment of death, all of these instruments cease to have effect and your Will takes over.

Your Will only deals with assets of the estate. Normally, joint assets such as your home and joint bank accounts, will pass to the surviving joint owner. Super assets also don’t form part of the estate unless you specifically direct the fund to pay the proceeds to your estate which will appear on your super fund’s nomination death benefit form as your “personal legal representative”.

Your super schemes will offer all or some of the following options:

A death nomination form instructs the fund trustees to pay the proceeds to the dependants specified. The trustees could still choose to make payments to other, unlisted dependants.

A binding death nomination binds the trustees to distribute as per your instructions. These generally expire after three years.

A non-lapsing binding death nomination stays in place until you die or it is updated. These days, most funds offer these types of nominations.

Super funds can only make payments to dependents or interdependants. That means the trustees wouldn’t be able to distribute the proceeds to your friends, charities and in most cases, your siblings or parents.

You best option in this case, is to leave the super proceeds to your estate and your Will would then distribute the proceeds We wish you all the very best for your upcoming surgery.

Q. My husband and I receive an age pension of about $80 each a fortnight. We also receive other income of about $15,000 for myself and $7000 for my husband. A family member is considering making us beneficiaries of a family trust with a distribution to each of us of up to $10,000 a year.

Will this generate a tax liability and are the payments likely to affect our pension?

You need to be careful about entering into the arrangement. The tax position is relatively straightforward and if you are old enough to get an age pension, there are tax offsets or credits you are entitled to.

The low income and senior and pensioners tax offset are all available.

The combined effects and Medicare concessions mean that as a couple you can each earn $31,888 before you will be liable for tax.

The Centrelink situation is far more complex.

In your case, it would appear that your pension is being reduced under the asset test and suggests assessable assets are around $980,000. We need to calculate how much income you could earn before the income test effectively catches up with the asset test.

Combined, you can have a total of $372 a fortnight before the pension starts to reduce at the rate of 50¢ for each $1. On that basis, the income you would need to earn before the pension paid to you is less than the $80 a fortnight you currently get is roughly a combined $3,400 a fortnight, or $88,400 a year including the current income. Centrelink treat you as a couple and in this case, who receives how much makes no difference.

The bigger issue is the trust itself.

Because it is controlled by a family member, Centrelink may apply provisions of a “control test” to determine whether it will add the value of the assets in the trust to your current assets. That could wipe out your pension altogether.

Centrelink is aware of arrangements used to defeat the means test system and look at associated persons to see if they can be influenced by you. The list of associated persons is broad and includes all family members and professional advisers such as accountants, financial planners or solicitors.

The better arrangement is probably one where you simply receive a gift from a family member and the discretionary family trust plays no part in your arrangements. You will still need to notify Centrelink of the money because it will change your financial assets by more than $2000 when it hits your account.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.