A private ruling from the Australian Taxation Office ruling (PBR 1051988780639) revealed that strategic, last-minute superannuation withdrawals, even if processed posthumously, can offer distinct advantages for estate planning in specific cases.
For Australians over 60 who are retired, superannuation withdrawals made before death are generally tax-free. However, when super death benefits are paid directly to non-dependent beneficiaries, like adult children, tax on the taxable portion of the benefit can reduce the final inheritance.
Consider this scenario: With a super balance of $1 million (100% taxable component) is intended to be split equally among two adult children, each child could face up to $75,000 in taxes on their share. By withdrawing the balance before passing in accordance with an Enduring Power of Attorney, the full amount could be transferred to the individual’s estate and distributed tax-free according to their will.
Executing a Last-Minute Withdrawal Strategy with an Enduring Power of Attorney:
- Preparing a Cashing-Out Request: The individual could pre-sign (but not date) a request to withdraw their super balance, structured to satisfy any minimum pension requirements first, followed by the remainder as a lump sum.
- Role of the Enduring Power of Attorney: Timing is critical, as this strategy relies on an ability to act quickly. The appointed Enduring Power of Attorney (EPA) would be tasked with activating the request if they believed that death was imminent. With this responsibility, the EPA could submit the cashing-out request to the trustee on the individual’s behalf, ensuring the withdrawal is completed as intended.
- Transition to a Creditor-Debtor Relationship: Once the cashing-out request is submitted to the trustee, the individual’s status with the fund changes from superannuation member to creditor. This adjustment legally reclassifies the pending payment as a personal asset, thus ensuring it forms part of the estate rather than a super death benefit.
This approach requires careful coordination and trust, as well as a well-drafted EPA directive to empower the attorney to act effectively. However, it may not be appropriate if the estate has significant debts, as superannuation benefits can offer some protection from creditors when held within the super structure but not if withdrawn.
For those with specific inheritance goals, a well-executed plan—including the strategic use of an EPA—can provide significant tax advantages and ensure a larger, tax-efficient legacy for beneficiaries.
References:
Townsend, Peter, Last-Minute Super Strategies to leave your heirs more, Australian Financial Review (December 2022)
