Death benefits, Estate Planning

Death benefits to estate can help keep assets

IFPA super death benefit estate planning SMSF tax

Paying a super death benefit to a member’s estate can reduce the tax bill a beneficiary may receive and assist them in retaining specific assets from the fund.

An SMSF choosing to pay a death benefit to a member’s estate rather than directly to a beneficiary can be a legitimate way to prevent the latter being hit with a tax bill as it can be paid within the estate, a superannuation specialist has noted.

Institute of Financial Professionals Australia head of superannuation and financial services Natasha Panagis said paying a super death benefit to an estate reduced the tax paid by non-tax-dependent beneficiaries and was relatively easy to do.

“To do this the super fund trustee will need to pay the entire death benefit to the legal personal representative of the estate,” Panagis said during a recent webinar.

“The fund trustee will also have to issue a pay-as-you-go payment summary to the estate and not withhold any tax.

“After this the executor of the estate shouldn’t issue a payment summary when any amounts are distributed to the beneficiaries because these amounts are effectively capital payments which have no impact on the beneficiaries’ personal tax position.”

She added in this situation the estate or the executor will then become responsible for paying any tax liability carried over from the super fund, which will take place as part of the estate’s normal trust tax return lodgement and payment process.

“When those who are expected to benefit from the estate are non-tax dependants, such as adult kids, any taxable component will be included in the estate’s assessable income in the year of receipt and it will be taxed as income to which no beneficiary is presently entitled,” she said.

“A tax offset will reduce the maximum tax rate to 15 per cent on any taxable taxed elements and 30 per cent on any taxable untaxed elements.

“This can be quite beneficial and extremely useful if, for example, the fund is an SMSF and it owns property, but might not have sufficient cash to withhold tax from the death benefit unless it sells the property.

“If the family wanted to hang on to the property, the SMSF could pay the death benefit to the estate in specie and the tax bill could be paid from other estate assets such as cash in term deposits and other types of liquid estate assets.”

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