Understanding Advance Transfer directives

Did you know there are different taxation treatments of your superannuation benefits on your death?

The tax payable depends on whether the money is paid to your dependants (e.g. your spouse or children under 18) or to non-dependants (e.g. adult children or testamentary trusts). This table illustrates the differences:

Tax Free Component Dependant Nil
Tax Free Component Non-Dependant Nil
Taxable Component Dependant Nil
Taxable Component Non-Dependant Varying between 16.5% and 31.5% depending on circumstances

However, if your superannuation benefits are paid out to you before you die, no tax should be payable regardless of who is the ultimate recipient.

We have considered the following scenarios:

  • You die suddenly. There is little that can be done to alleviate the tax consequences for your non-dependants.
  • You become aware that you have a terminal illness (for instance you are given 3 months to live). It is possible for you to direct the trustee of your Self Managed Super Fund (SMSF) prior to your death that you wish to redeem your superannuation benefits. You can then deal with them under your Will and there would be no tax payable.
  • You have an accident or acquire an illness which causes you to lose the capacity to manage your own affairs prior to your death (e.g. a coma after a stroke). In these circumstances, you are not able to instruct the trustee to withdraw the superannuation benefits and the tax consequences will apply on your death. It is possible, however, to prepare for this possibility by putting in place a specific power of attorney and Advance Transfer Request which allows an attorney to request the trustees to withdraw the monies from your SMSF while you are still alive.

We can assist you with a suite of documents specifically designed to address this issue which will allow your attorneys to redeem your superannuation benefits before you die so that those funds will form part of your personal estate and then be distributed tax free in accordance with the terms of your Will.

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