Q. My wife and I are retired, aged 70, own our own home, and have a SMSF with around $600k in term deposits (80%) and shares (20%). Given the costs to maintain this fund, and to make life (and death) simpler, would it be better to close this and just transfer all the funds to joint names? I don’t think tax issues will apply in either case
A. The Superannuation system is an extremely tax effective mechanism to fund retirement income. The decision whether to use the Superannuation system via a SMSF or via a Public Offer fund will largely be determined by the cost, your willingness to deal with the complexity and also what type of assets you plan to own in the fund.
As you own shares and Term deposits, you have the same investment choice under either structure so the decision should be governed by cost or complexity.
In terms of Estate Planning, on the presumption that you have nominated each other as primary beneficiaries, there would be no tax on funds being paid to the surviving spouse. If you have children who are no longer dependent, tax would be levied on the taxable component at a rate of 15%.
Earnings from within an Allocated Pension and income drawn from the fund are tax free as you are over 60. Current Legislation provides for 15% tax on earnings within the fund in excess of $100,000.
Be wary of the long term tax consequences of investing outside Superannuation. If you had the funds invested outside the Superannuation system you would pay income tax on taxable income above $28,974 each. The higher tax free amount is due to your entitlement to the Senior Age Pension Tax Offset. Note also that you would pay Capital Gains tax on share transactions.
Also note that once you take the funds out of the Superannuation system there are restrictions on getting the money back in because of your age. So it is a big call to cash out.
There are some extremely price competitive Pubic Offer funds that afford the benefits of the Superannuation system without the costs and management of a SMSF. Shop around to compare.
Most couples with an SMSF looking to simplify their lives would typically look first to retain the funds within the Superannuation system by transitioning to a Public offer fund. They would consider cashing the funds out of the Superannuation system on the death of a Spouse primarily to manage future tax tax liability of non financially dependent beneficiaries and to simplify life. Up to the point of the death of a spouse, use the tax benefits of Superannuation to your advantage.