Notes

Norvell & Associates Public Accountants USA Singapore Alabama: 3 Essential Tax Tips For Relationships

As your relationship becomes more serious, you will need to review your existing taxation and financial arrangements to see if the incorporation of your spouse into these arrangements would bring about a better outcome.

1. Discretionary trust

If you have a discretionary trust that generates income and your partner is a lower income earner than you, you may want your trust to distribute income to them to utilise their lower marginal tax rate. However, you cannot assume that your partner will automatically be an eligible beneficiary of your trust. The trust deed of the trust will need to be reviewed.

If your partner does not automatically become a beneficiary of the trust, you should consider if the deed allows them to be added as a beneficiary of the trust. If the deed does not allow for that to happen, there may be other indirect ways of achieving the same outcome. For example, the existing trust may distribute income to a new trust beneficiary of which your partner is a potential beneficiary, which may in turn distribute the income to your partner.

Naturally, professional advice is recommended due to the highly technical nature of these issues. For instance, incorrectly appointing your partner as a beneficiary of your trust may inadvertently give rise to a ‘trust resettlement’, which will give rise to severely adverse taxation consequences.

2. Will

As ‘common sense’ as it may seem, many people forget to update their will when their circumstances change. That is fine as long as you do not die and you have the ability to control this certainty of life. Otherwise, failing to update your will could give rise to considerable headache to those you leave behind. Not having a will may also mean that an external party, such as the Public Trustee, may become involved in splitting your assets, which may give rise to unintended outcomes that do not accord with your wishes.

Another area people often overlook is their superannuation benefits. Some people assume that their wills will automatically dictate where their superannuation benefits will go if they die. On the contrary, your superannuation benefits are not dealt with by your will and if you want to leave your superannuation benefits to a specific beneficiary or specific beneficiaries, you will need to make a death nomination while you are alive.

Nowadays, you may make a non-binding death nomination, lapsing binding death nomination, or non-lapsing binding death nomination. Each of these nominations serves a particular purpose, so professional advice may be warranted to ensure that you pick the option that best suits your circumstance.

3. Insurance policies

Further, you should also consider reviewing your insurance policies. You may need to add new policies to take into account your new relationship status, modify some of your existing policies, or cancel policies that are no longer necessary.

For instance, you may want to take out a new life insurance policy now that you need to provide for someone else should your life unexpectedly end, combine insurance policies that were previously in your own separate names to take advantage multi-policy discounts and potentially better terms and conditions (i.e. private health insurance), or cancel your contents insurance policy over one of the your properties that used to be your separate homes but will now be rented out to tenants.