Reducing Estate Taxes Through Superannuation Strategies

By Jaye Mankelow

Superannuation is a powerful tool in estate planning, especially for those aiming to minimise estate taxes and maximise the wealth passed on to beneficiaries.

By employing strategies such as recontribution, thoughtful beneficiary nominations, and strategic withdrawals, individuals can reduce the tax impact on their estate and ensure more of their wealth reaches loved ones. Here’s how you can use superannuation-focused strategies to optimise your estate plan.

Recontribution Strategies

Recontribution involves withdrawing funds from super and then recontributing them as non-concessional contributions, often used by couples to balance superannuation accounts and reduce the taxable component of their estate.

• Balancing Super Between Spouses: By shifting funds between accounts, it’s possible to reduce the overall taxable portion within super, lessening the tax paid by non-dependent beneficiaries such as adult children.
• Minimising Death Benefits Tax: Recontribution strategies convert taxable components into tax-free components within super, reducing the tax burden on super death benefits.

Example: A couple strategically withdraws and recontributes funds to balance their super accounts, ensuring that taxable components are minimised before they pass on their estate to adult children.

Drawing Down Taxable Pensions First

For those with both tax-free and taxable superannuation balances, it can be advantageous to draw down taxable portions first. This approach reduces the taxable component of the super balance, minimising estate taxes for non-dependent beneficiaries.

• Prioritising Taxable Components: Drawing from the taxable portion first ensures a larger tax-free balance remains in super, which will not be taxed upon transfer to non-dependent beneficiaries.
• Tax Efficiency for Beneficiaries: By gradually reducing taxable components, retirees can lower the estate tax impact on super death benefits, particularly valuable for those with adult children beneficiaries.

Tip: A financial advisor can help structure drawdowns to align with tax efficiency and cash flow needs, making this strategy both practical and beneficial.

Using Lump Sums Strategically

Taking lump sum withdrawals from super can reduce the taxable portion of an estate, providing tax advantages for beneficiaries. These sums can also be reinvested or managed to lower estate tax exposure.

• Reducing Taxable Super Balance: By taking lump sum withdrawals, retirees reduce the taxable component within their super, thereby minimising tax obligations when the estate is transferred to non-dependent beneficiaries.
• Reinvesting for Tax Efficiency: Lump sums can be reinvested in tax-efficient structures or used for gifting, further reducing the estate’s taxable component.

Example: A retiree might withdraw a lump sum from super to support immediate family needs or to reinvest in a family trust, ensuring the funds are distributed tax-efficiently.

Using a Superannuation Proceeds Trust

While superannuation assets are usually paid directly to beneficiaries upon death, directing super proceeds into a Superannuation Proceeds Trust (SPT) can offer additional tax and asset protection benefits, particularly when beneficiaries are non-dependents.

• Beneficiary Tax Efficiency: An SPT allows superannuation proceeds to be distributed with potential tax advantages, depending on the type of beneficiaries and their income situation.
• Asset Protection: SPTs provide an additional layer of protection, ensuring that superannuation assets are kept separate from personal estates, shielding them from potential creditors or third-party claims.

Example: A retiree establishes an SPT to receive their superannuation death benefits, ensuring their adult children receive the funds in a structured and tax-efficient manner while maintaining asset protection.

Superannuation strategies are invaluable for minimising estate taxes and optimising the distribution of assets to beneficiaries. From recontribution to the use of Superannuation Proceeds Trusts, these methods help secure a more tax-efficient legacy.

Aspira’s advisors are available to develop superannuation strategies tailored to your estate goals, ensuring your assets are protected and distributed efficiently. Reach out to explore how these strategies can maximise the financial legacy you leave for your loved ones.

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