Tax on superannuation
Many of our clients are shocked to learn that when leaving their superannuation to their adult children, large amounts in tax may have to be paid by your adult children on receipt of your inherited superannuation. This tax may be avoided with some cleverly considered estate and financial planning.
At Murnane Legal, we work closely with accountants and financial planners to ensure your superannuation is distributed in a manner that meets your intentions and is tax effective. Even we have been surprised the amounts of tax financial planners have been able to save for our clients.
To reduce the tax on superannuation received by a non-dependent beneficiary from an estate, the following strategies may be considered by your financial planner or accountant:
Re-contribution Strategy: This involves withdrawing a portion of the superannuation balance and re-contributing it as a non-concessional (after-tax) contribution. This can convert the taxable component into a tax-free component, thereby reducing the tax payable by the beneficiaries.
Withdraw Superannuation: Depending on the individual's age and circumstances, withdrawing superannuation before death can allow it to pass to beneficiaries as cash, which is not taxed. This should be done with careful consideration and advice from a financial planner.
Binding Death Benefit Nomination (BDBN): Ensure that the BDBN is correctly completed and lodged with the superannuation fund. This ensures that the superannuation death benefit is paid according to the deceased's wishes and promptly.
Allocate Superannuation to Dependent Adult Children: If an adult child becomes a dependent (e.g., by providing care to the parent), they may receive the superannuation tax-free. Consider including a clause in your Will directing the executor to allocate superannuation to any dependents at the date of death.
Superannuation Proceeds Trust (SPT): If the superannuation proceeds are paid to a testamentary trust and the beneficiaries are exclusively dependents, the tax treatment is more favourable. Establishing both a SPT and a testamentary trust in the will can provide flexibility and tax efficiency.
If you do not have a financial planner, Murnane Legal has a number of highly regarded it can refer you to.
DISCLAIMER: This article is provided for general information purposes only. It does not constitute specific legal advice or opinion. Although our aim is to provide you with as accurate information as possible, you should not act or rely upon the information in this article without seeking the advice of an experienced lawyer who specialises in the particular area of law relevant to your inquiry. Please do not hesitate to contact Murnane Legal to make further inquiries or to make an appointment to discuss the specifics of your situation.
