With the rise of superannuation and the increase in self-managed superannuation funds, also comes the rise in taxes payable as a result of the death of a member of those superannuation funds upon the monies paid to their estate as a death benefit.

A little-known fact, the death benefit held by the superannuation fund, including a self-managed superannuation fund, are required to be paid out pursuant to the terms of the deed. Not only can this act of “paying out” give rise to capital gains tax consequences, especially where investment properties, be they commercial or residential, are held, capital gains tax can also rise in relation to the transmission and/or sale of shares.

Perhaps of greater concern, is when the last of the surviving spouses passes and the proceeds of the self-managed superannuation are required to be paid out to the no longer tax-dependent adult children. In some cases, there are some parties that fall under the tax-dependent umbrella and those that fall outside it.

The recent decisions of McIntosh v McIntosh [2014] QSC 99 and the more recent decision of Brine v Carter [2015] SASC 205, indicate that executors must (absent and express clause authorising the executor to claim superannuation proceeds) collect the superannuation monies into the estate, pay liabilities and distribute those superannuation monies equally among the named beneficiaries.

The difficulty with the executor’s duty, is that by dealing with the superannuation proceeds in this manner is that they may inadvertently burden the estate with a tax liability that would not otherwise have applied. For that reason, particularly as a result of the decision of Brine v Carter, advisors and clients alike should have particular regard to whether or not the ability for executors to pay superannuation proceeds to a superannuation proceeds trust is a viable option when drafting a Will and crafting the estate plan.

Perhaps more importantly, binding death benefit nominations should be carefully crafted and the deceased’s Will should include an equalisation clause allowing the executors to take into account superannuation proceeds that might be paid by way of binding death benefit nomination to a tax-dependent when making distributions from the residuary estate. Failure to consider these two areas carefully could result in disappointed beneficiaries, a windfall for the Federal Government in tax revenue and a potential professional negligence claim for a failure to properly advise during the estate planning process.

The days of a simple Will, other than for those with the most simple of circumstances, has probably passed.

Until next time

Dan Hutchinson