Superannuation and estate planning
Your superannuation is often one of your largest assets, and it is treated differently from everything else you own. It does not automatically form part of your estate, and depending on who receives it, part of it can be taxed. If your super is paid to a spouse or another tax dependant, it is generally tax-free. If it is paid to an independent adult child, the taxable component is taxed. With the right nomination and, where it suits, a testamentary structure, that outcome can be planned for rather than discovered later.
Superannuation is held in a fund and sits outside your estate. Unless you have a valid binding death benefit nomination, the fund trustee decides who receives your super when you die, and your will does not control it. A valid, current nomination puts that decision back in your hands. It lets you direct the benefit to the right people, or to your estate or a testamentary structure where that is the better outcome.
The tax depends on who receives the benefit. A tax dependant, such as a spouse, a minor child or someone who was financially dependent on you, generally receives your super tax-free. Someone who is not a tax dependant, most commonly an independent adult child, is taxed on the taxable component. The taxed element is generally taxed at 15% plus the Medicare levy, and any untaxed element, which often includes insurance proceeds held in super, can be taxed at up to 30% plus the Medicare levy. For a large balance left to adult children, this can be a significant amount.
A superannuation proceeds trust is a testamentary trust designed to receive a superannuation death benefit. Used correctly, it holds the benefit with asset protection, and where minor beneficiaries such as grandchildren are involved, it can allow the income earned on the benefit to be taxed at ordinary adult rates rather than the penalty rates that normally apply to children. It does not remove the death benefits tax on the benefit itself, but it can improve what happens to the money afterwards, and protect it.
Division 296 applies an additional tax on the earnings attributable to superannuation balances above $3 million. In an estate context it can create a tax liability connected to super even where the eventual beneficiaries do not receive that value. If your balance is near or above that threshold, it is worth reviewing how your super is structured and nominated as part of your overall plan, rather than in isolation.
Superannuation should be planned alongside your will, not separately from it. That means a valid and current binding death benefit nomination, a decision about whether the benefit should go directly to a person, to your estate, or to a superannuation proceeds trust, and coordination with the rest of your estate plan so the tax and asset protection outcomes are deliberate. For self-managed funds there are extra levers, and extra traps, in the trust deed and the nomination.
If you hold significant superannuation, particularly in a self-managed fund, it is worth checking who will receive it, how it will be taxed, and whether it is nominated and structured the way you intend. That is a short conversation, and it often surfaces a gap the rest of the estate plan does not show.
Frequently asked questions
This page is general information only and does not take account of your personal circumstances. It is not legal, tax or financial advice, and tax rules change. You should obtain advice specific to your situation before acting.