Withdrawal strategies before death require careful consideration

Professionals have been warned there is a “fine line” between member benefits and death benefits where a member plans to withdraw shortly before death.

 

In a recent article, Cooper Grace Ward Lawyers senior associate Steven Jell said there can be a different tax treatment depending on whether a superannuation payment is a member benefit or a death benefit. “For example, a person over the age of 65 can access their superannuation tax free. However, if the same person dies with assets remaining in superannuation, then there could be tax payable when their remaining superannuation entitlements leave the fund,” he explained.

Mr Jell noted that most people want to leave their superannuation in the superannuation environment as long as possible because of the tax concessions that are offered through superannuation.

“However, if we leave it too long and there are remaining entitlements in a superannuation fund at that individual’s death, then there could be tax payable when those amounts leave the superannuation fund,” he stated.

Some members therefore want to pull their superannuation out on their deathbed, he said.

“[However] there can be quite a fine line when it comes to determining whether a payment is a member benefit or a superannuation death benefit where members are trying to complete a superannuation member withdrawal shortly prior to their death,” he cautioned.

“What we see is that most strategies like this fail to take into account all of the relevant considerations.”

Mr Jell said there are a number of things to consider when looking to implement a member withdrawal shortly prior to a person’s death. 

“We’ve got to look at, well, who’s the person making the request? Is it the member individually or is it their attorney? Who controls the fund? Is it directors of the corporate trustee, or we dealing with individual trustees when it comes to approving the payment to the member?” he questioned.

It is also important to look at what the trust deed says and what will happen to that individual’s estate planning considerations if the payment is made from the fund prior to their death and the assets are then held in their personal name, he added.

The types of assets that are being transferred also needs to be considered, he said.

“Do we need to sell assets to complete the payment or are we looking to transfer assets in specie?” he said.

“The reality is, if all of these things aren’t considered appropriately, the tax consequences of getting a strategy like this wrong can be substantial.”

Whether this kind of strategy will be appropriate will vary for each person, he noted.

 

Miranda Brownlee

23 August 2022
smsfadviser.com

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Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

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