The Tax Man Does Not Have Children

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The Tax Man Does Not Have Children- by Ken Raiss

You thought we no longer had death duties but call it something else and we can see that the tax man can get a slice of your superannuation on your death if it goes to certain people.

Everyone who has children knows that the Bank of Mum and Dad is an institution that runs 24/7 everyday of every year and that even when our kids say they are independent they always know were to go in difficult times.

Unfortunately the tax man thinks differently and believes once your kids reach 18 they are no longer financially dependent on you and so,  tax part of your wealth if you send it to them on your death.

There is only a select group of people who can receive your residual superannuation interest on your death and you need to be careful when deciding on the split of your wealth on death to maximise the distribution. For superannuation the law is very strict on who can receive any balance and these include:

  1. financial dependents
  2. your spouse
  3. your children under 18
  4. anyone that you are in an interdependent relationship with.

The tax man then takes his slice of the money if it goes to persons outside of this group. There are circumstances where your child under 25 can receive a benefit from your superannuation and not be taxed but these are limited.

It is critical to recognise that your superannuation is not your money and so cannot form part of your estate (your interest in trusts are not yours as well) and so must be treated specifically. The normal procedure is to have what is called a binding death nomination to either direct the superfund trustee to distribute directly from your super to the above categories of people or to have the funds directed to your estate which then will direct it to the relevant persons. Note that in both scenarios the tax rules will apply.

Related:  WOW That's Super

The documentation of a binding death nomination has very specific legal requirements and if incorrectly drafted (as can often occur) is void and so the trustee of the superfund can decide themselves how to distribute the funds. It is also the case that the documentation requirements are significantly different dependent on whether you have a self managed superfund or are in a retail/industry/ employer fund.

It is interesting to note that the tax man treats the relationship to dependency differently if it is grandparent’s superfund or the actual parent’s super monies. The different administrative bodies that govern and manage superannuation law also look at the dependency issue differently. It is therefore critical to get advise from a SMSF or Superannuation specialist when preparing your will as no one wants to necessarily be caught in reducing the kids inheritance by death duties applicable to superannuation.

Ken Raiss, Director of Chan & Naylor Platinum

Ken Raiss will be presenting at the National Property & Economic Update, 1 Day Training:

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Disclaimer: This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives

2 responses to “The Tax Man Does Not Have Children”

  1. DAVID says:




    • Chan & Naylor says:

      Hi David. You will have to check your Industry Superfund as all Binding Death Nominations can be written differently depending on the Superfund. Ones Will normally triggers a Testamentary Trust upon the death of a beneficiary. You will need to get specific advice. Please feel free to call or email us.

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