Division 296 is now law. Is your estate plan already broken?

Division 296 has now passed. And while most of the public debate has swirled around politics - the $3 million threshold, the treatment of unrealised gains, whether the cap will ever move - I have been focused on something more human and more immediate.

What does this legislation actually do to the way wealth moves between generations? And who ends up holding what?

In my experience working with families navigating significant wealth, those are always the questions that matter most. Not the tax rate. The relationships.

First, the numbers

Division 296 imposes an additional 15% tax on the portion of super earnings attributable to balances above $3 million, rising to an additional 25% on the portion above $10 million.

For many Australians, the immediate reaction is: that's not me. And for most, it isn't. Yet.

It might be closer than you think

Picture a couple. Each has around $1.8 million in super. Individually, neither is anywhere near the $3 million threshold. Division 296 feels like someone else's legislation.

Then one of them dies.

Depending on how their super is structured, the surviving spouse may inherit the deceased's balance, potentially pushing their own well above $3 million overnight. No tax bill arrives immediately. But something important has changed. From that point, the surviving spouse is inside the Division 296 regime. Earnings on the portion of their balance above $3 million will be taxed at 30% going forward. And when they eventually die, their estate will carry the full consequences of a balance that grew past the threshold after the first death.

This is why couples need to think about this legislation not just in terms of their individual balances today, but across both deaths.

The trap most people aren't seeing

The Division 296 tax liability falls to the estate. But superannuation death benefits can be paid directly from the fund to nominated beneficiaries - completely outside the estate.

If your super beneficiaries and your estate beneficiaries are different people, the tax burden and the benefit can end up in completely different hands. One family member receives the super. Another inherits the tax bill.

Your superannuation nominations and your will need to be read together. Not separately, not at different times with different advisers. Together.

The uncomfortable quirk nobody mentions

Under the legislation, if your super balance exceeded $3 million at the start of the financial year, Division 296 tax applies to your earnings from 1 July to your date of death. The liability then falls to your estate. Which means there is a relationship between when in the financial year a person dies and the size of the tax liability. Die earlier in the year and the taxable earnings period is shorter. Die later and more earnings have accumulated since 1 July, producing a larger liability.

You cannot control when you die. But it is a genuine structural quirk worth understanding.

This isn't the first super death tax. It's a new layer.

Super death taxes are not new territory. Adult children can already pay up to 32% death benefits tax on inherited super. Division 296 doesn't replace that complexity. It sits on top of it.

When capital is repositioned - moved out of super, restructured, gifted earlier - the cost base of those assets becomes critically important for capital gains tax purposes. Getting this wrong doesn't solve the problem. It creates a different one.

This is the kind of interconnected decision-making that requires coordinated advice. A financial adviser who doesn't know what the estate planning lawyer is doing, and vice versa, is not enough.

The bigger shift

Superannuation was designed as a retirement savings system. Quietly, over decades, it became something else for many Australian families - one of the largest pools of intergenerational capital they would ever accumulate. A de facto inheritance vehicle. Division 296 is an attempt to correct that drift.

We will see more deliberate wealth transfer during life. Earlier gifts. Asset restructuring. More intentional charitable giving. Capital moving between generations consciously, with intention, rather than sitting in super until death.

In my work with families, I have seen what happens when wealth transfers at death, in the middle of grief, without a plan. I have also seen what happens when it is given with thought, during life, with relationships intact. The latter tends to land better.

What to do now

If your super balance - or your combined balance as a couple - is approaching or exceeding $3 million, there are a few conversations worth having.

Look at your superannuation nominations and your will at the same time. Understand who receives the super, who receives the estate, and where any tax liability will actually land.

Model what happens on the first death. If a surviving spouse could inherit a balance that pushes them above $3 million, that needs to be understood now - not discovered in the fog of grief.

If you are considering repositioning capital out of super, do it with full advice. The cost base of assets and the CGT consequences of restructuring matter enormously.

And above all, get coordinated advice from both a financial adviser and an estate planning lawyer, working together. The cost of good advice now is considerably less than the cost of untangling a poorly planned estate later.

Division 296 is a prompt. Use it.

Rachael Rofe is an estate planning lawyer and wealth transfer specialist. She advises families and their advisers on estate planning, superannuation succession, and philanthropic structures.