In less than three months, the changes to super will have kicked
in. For many superannuants, the focus has been deciding on whether
they can afford to make additional contributions to super this
financial year before the contribution limits drop. For those who
are drawing a private pension and have more than $1.6 million in
their pension account, the focus is perhaps on how to restructure
their arrangements to comply with the new rules commencing on 1
The above are important considerations but what a lot of people
haven't turned their minds to, is the hidden impact which the
super changes will have when someone passes, particularly where a
death benefit is likely to be paid as a pension. The impact is in
the reduction of tax effectiveness of pensions due to the $1.6
million transfer balance cap measure. It is important to think
about this now so that estate planning strategies can be reviewed
to ensure one's estate planning goals can be fulfilled and any
adverse tax implications can be avoided, or at least minimised.
With spouses, current strategies typically involve keeping a
deceased member's superannuation in the superannuation system
for as long as possible. This often means that on the death of a
member, a surviving spouse will receive the deceased's death
benefit as a pension - it may be a "reversionary pension"
or a "non-reversionary pension" (for example, the
deceased was still in accumulation mode and the fund trustee
exercises its discretion to pay a pension to a surviving spouse, or
the deceased was receiving a pension but on their death, the
trustee has discretion about how to deal with the deceased's
The concept of the $1.6 million transfer balance cap can
significantly impact these strategies and will often make it very
difficult for a deceased member's superannuation to remain in
the superannuation system. An example of this is where the
surviving spouse has a substantial superannuation balance of their
own and the payment of the death benefit causes the surviving
spouse to exceed the transfer balance cap. The surviving spouse has
the following options:
Commute all/part of their pension or the death benefit back to
an accumulation account (six months after commutation to
accumulation they will be treated as member benefits and taxed
Cash out all/part of their pension or the death benefit so that
they receive it in their personal name (and then pay tax at
The above highlights that it's important to be aware of what
the imminent changes in the super law could mean to your estate
planning objectives and strategies. People still have time to
explore their options in response to the changes, which may or may
not involve directing all or part of their death benefits (which
would otherwise have been paid as a pension) to their estate and
perhaps to a superannuation death benefits proceeds trust.
Like in anything, there is no 'one size fits all' in
estate planning. In order to ensure that a person's needs are
effectively tailored to their personal circumstances, a greater
degree of collaboration between lawyers, accountants and financial
planners will be required. It may otherwise be very difficult to
achieve that all important balance between asset protection, tax
effectiveness and flexibility.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A testamentary trust is a trust that is created under a will and comes into effect after you die for estate planning.
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