Grow the education contribution
A scholarship left by a deceased parent can benefit from posthumous insurance payments, writes George Cochrane.
A scholarship left by a deceased parent can benefit from posthumous insurance payments, writes George Cochrane. My son passed away, leaving a seven-year-old. He had two properties held as joint tenants with his former wife. He also had about $50,000 in superannuation, which is being deposited in a trust account for my grandson. I wish to find the best option for him. Also, my son contributed about $21,000 towards his child's education with the Australian Scholarship Group (ASG). Even with family protection applied, I find they pay only about 3.5 per cent interest (which barely matches inflation) and charge a hefty management fee. Last week, when I checked with them, the balance had declined to $18,000. It is extremely unsatisfactory and I wish to find a better alternative. They indicated that there is a fee to close this membership. I would appreciate your advice regarding the situation. W.L.Pity. With good legal advice, ownership of those two properties would have been converted to "tenants in common" so his 50 per cent could have been bequeathed to his son. As it is, his former wife inherits both, although she might leave them to her son or use them for his benefit.Income from the $50,000 death benefit is known as "excepted income" and your grandson will be taxed as an adult on this, which means the first $6000 is tax-free, rising to $18,000 after July 1. I would invest in term deposits and high-yield online accounts for the while, before possibly looking in the future for blue-chip shares offering high franked yields. Cashing in any benefits from the ASG early means you get back only your contributions, less fees.Whether or not this fund proves useful to you depends very much on your circumstances. If you are not very well off and would find that paying for the child's school and tertiary education would be a burden, then I suggest you continue the program. However, the eventual benefit consists only of your own contributions, or less if the fund has made losses. So school fees will probably need additional payments.The "family protection program" you mention is an insurance scheme your son paid for, with a portion of his contributions going into a mysterious "YRT Fund", which is not explained on either the ASG's website or the PDS. Nevertheless, it functions so that, in the event of the death of the family's main provider, a payment will be made into your grandson's account as though your son's contributions had continued for the term of the program, assuming your son had made regular contributions and not an irregular series of lump-sum payments. This would be a strong reason for continuing.Make most of TPD payoutI am 41 and medically retired as a result of work injury. I have $900,000 to live off for the rest of my life. I own my own house, valued about $300,000. I have $1000 owing on my mortgage to allow me to redraw an available $150,000 for an emergency. I have about $70,000 in my super. I am precluded from receiving any Centrelink benefits until 2023. I currently live alone and have no dependants. I was thinking about putting most of the $900,000 into a cash account and living off the interest, with a portion of it going towards a managed fund with franked dividends to assist with tax. I was also thinking of putting some into my super for the future. How can I optimise my money and draw a regular income from it? J.S.Ideally, you would benefit most if able to place the money into a super fund as an untaxed contribution: that is, without it being taxed on entry, thereby forming a super benefit consisting of a 100 per cent tax-free component. You could then withdraw a tax-free pension from an untaxed fund. However, there are a large number of uncertainties.To explain, super contributions that stem from a settlement for a "personal injury" are excluded from the standard non-concessional cap of $150,000 a year, so you can contribute an unlimited amount. This money then falls into the tax-free component and is untaxed on withdrawal, either as a lump sum or pension. Also, pension funds are not taxed on their income.However, the money has to stem from either: (i) a structured settlement (ii) an order for a personal injury payment or (iii) a lump-sum workers' compensation payment, with the exclusion from the contribution cap applying only to that part of the payment that is compensation or damages for personal injury.This definition therefore excludes a lump-sum insurance payout from a claim for total and permanent disability or TPD, if that is what you received.Also, the contribution must be made within 90 days and you must notify the tax office at the time, using its form "NAT 71162 Contributions for personal injury election".If you are able to make a contribution, you first need to ensure that the super fund will not classify this benefit as "preserved", as that would deny you access to it until you reach "preservation age", which, in your case, would be 60. However, one "condition of release" for preserved components is permanent incapacity and, in such a case, the fund's trustee can declare your benefit "non-preserved and unrestricted" that is, you can draw a pension before reaching preservation age. Also, it makes things simpler if you contribute to a new super fund and not to your existing one.If you have tried that but still have the money in the bank then yes, I suggest a mix of term deposits from banks, credit unions and building societies, spread over a range of terms.If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.
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