Superannuation Proceed Trust (SPT) and Avoiding Tax on Super

An SPT is a trust upon the death of the testator. The superannuation death benefits are transferred to the trustee of the SPT (death benefit dependant) rather than the Estate.

Under the Income Tax Assessment Act 1997 (Cth), a death benefit dependant lump sum payment is not considered as assessable income.

However if the death benefit is paid as an income stream, or paid to a non dependant or solely to the trustee of the deceased’s estate there may be tax implications.

Who can be a Death Benefit Dependant
  1. A death benefit under the Income Tax Assessment Act 1997 (Cth) could be;
    1. a spouse or former spouse of the deceased;
    2. a child of the deceased, aged below 18;
    3. any other person as defined under section 302-200 of the Income Tax Assessment Act 1997  (Cth)  with  whom  the deceased had an interdependency relationship before his or her death; or
    4. a person who is dependant (financially) of the deceased just before his or her death.
  2. A person who receives the superannuation lump sum of the deceased person who dies in the line of duty as a member of the Defence Force, a member of the Australian Federal Police or the police force of a State or Territory or a protective service officer as defined under the Australian Federal Police Act 1979 will be treated as a death benefit dependant of the deceased in relation to the lump sum.
How does a SPT Work

A SPT can be established by way of either:

  1. will of the testator; or
  2. a superannuation fund trust deed.

When the superannuation trust is established by way of the Will of the deceased, the trust commences when the trustee receives the superannuation death benefit from the executor of the deceased.

In circumstances when there are more than one death benefit dependant, the terms of the SPT should be drafted in a way that outlines the specified shares of each death benefit dependant.

If payments are made directly to the trustee rather than the dependant, it should not be ignored that the payment is ultimately for the benefit of the death benefit dependant.

One other advantage of a SPT is that any earnings on a SPT’s capital can be distributed to the death benefit dependant whilst it is taxed at ordinary adult rates rather than penalty child rates.

A SPT are suitable for testators who have tax dependants who are minors, or who may be vulnerable in some way (such as illness, injury or a disability). Its flexible nature may also assist growing wealth.

Further, even at times where there are no minor tax dependants, a SPT can be useful as circumstances may change and even an independent adult child may become dependent due to some unforeseen events.

After Death SPT

Where there are substantial superannuation assets in the deceased estate and the testator did not establish a testamentary trust in his or her will, it would be useful to prepare establish SPT after the death of the testator for the death benefit dependant.

Care should be given to preparing this kind of SPT as some of the superannuation fund trustee may not have the discretion to pay the proceeds to a SPT under their own trust deed.

How Legal Advice Helps with Avoiding Super Tax upon Death

A proper legal advice and preparation of a SPT during client’s estate planning process may ensure that the minor children and/or grandchildren will be receiving a tax-free benefit at the time when they are old enough to deal with a lump sum superannuation amount passed on to them.

It can give the clients valuable peace of mind to know the loved ones will not be susceptive to hefty tax payments upon distribution of their estate.

Generally speaking a well-established SPT could save the beneficiaries of the estate substantial money as unlike the general myth the adult beneficiaries of an estate with high superannuation savings can be hit with a massive tax payment.

Further if you would like to leave your super to someone who under legislation does not qualify as a dependant, you may need legal advice to ascertain your super will be distribute according to the terms of your Will.

Our Services

Should you require any assistance with SPT, including advice on an existing SPT, establishing a new SPT, or disputes in relation to a SPT, please do not hesitate to contact one of the experienced solicitors at Pavuk Legal.

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