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Summary

Recent changes to superannuation have meant that it is probable large sums will be held in many superannuation funds at the time of death of a fund member, with the prospect of significant tax being paid as benefits pass to non-dependent beneficiaries.

This “death duty” can be avoided with careful planning.

The change

Previously, there were limits on the amount of superannuation contributions, strict requirements to “cash out” benefits in retirement, and adverse tax consequences if benefits were received by a “working retiree”

All that has changed. Generous contribution allowances in recent years mean that amounts held in superannuation funds are now measured in billions of dollars. Also, from 1 July 2007 persons over 60 can withdraw superannuation benefits tax free before death.

The benefit

Retirees will now be tempted to leave large amounts of money in superannuation, because of the favourable taxation position. For most people approaching or enjoying retirement, they have never had a better “deal” than at present.

The problem and solution

Superannuation benefits paid out after death to non-dependant beneficiaries will incur significant taxation on the taxable component of the member’s benefits - the likely rate is 16.5% (including the Medicare Levy).

In our opinion, many simplistic approaches trying to “fix” the death benefits problem (such as a simple power of attorney or undated notices of redemption) will not be effective.

With careful planning the “death duty” problem can be reduced or avoided altogether. Our strategy, supported by the opinion of senior counsel, involves a series of steps which simplify the process of redemption and, most importantly, ensure that assets still held in a fund at death are treated as be4ing assets of the members (and therefore not taxable).

If you would like to discuss this issue please contact us.