If subsequent to your death the benefits are paid to a “non-tax dependant”, such as an adult child or the executor of your estate, there is a taxable component of 17% (inclusive of the medicare levy) which is payable on the distributed amount.

Example:

A 75-year-old client suffered a relapse of a cancerous condition which had been in remission. As the medical prognosis was for a limited further life expectancy, he didn’t wish to undergo any further treatment. His wife had predeceased him and he had one adult non-dependent son and two infant grandchildren. Before he died we prepared a new Will for him which provided for a discretionary testamentary trust with his son and grandchildren as the primary beneficiaries as to the capital (referred to as a bloodline trust). His superannuation nomination was changed so that his superannuation member benefits were paid to his estate. Accordingly his benefits formed part of the bloodline trust subsequent his death resulting in enhanced asset protection and taxation benefits for his son and grandchildren.

When he contacted us, his self-managed superannuation fund (SMSF) had assets which consisted of cash on deposit, public company shares and a commercial property which had been his business premises, but which was rented to the subsequent business owner.

As he was in pension mode regarding the payment of his member benefits, his stock broker was instructed to transfer the public company shares from the SMSF into his name by way of an off market transfer. He also took the cash out of the SMSF bank account and put it into his personal bank account. The property was then transferred (also in specie) into his own name. None of these transactions incurred any capital gains tax (CGT) or, in the case of the transfer of the property, any Victorian Stamp Duty.

At the commencement of the exercise, the superannuation fund balance totaled $3,253,295.

Within this balance, the taxable component of his benefits was $923,919, resulting in a Future Death Benefit Tax (FDBT) liability of $138,588 if the benefit were paid to the Estate in accordance with his latest Binding Death Benefit Nomination. The difference in the taxable component was because the building held by the SMSF used to be his business premises which some years before he had transferred into the SMSF.

Prior to his death a total of $1,932,991 was taken out to deplete the taxable components, therefore minimizing the future taxable portion of the fund to $23,520, which lowered the potential FDBT from $138,588 to $3,528 achieving a net tax saving of $135,060.

On his death, the assets formerly held as part of his member benefits by the SMSF (the public company shares and the commercial premises) together with the sale proceeds of his residence and other personally held assets all became assets of the discretionary testamentary trust without incurring either CGT or Victorian Government stamp duty. Any future CGT incurred by the Trust would be on the increase in value of the assets from the time when they were transferred into his name, with a 50% discount on any gain which could be split between the beneficiaries of the discretionary testamentary trust.

If you are seeking Estate Planning advice concerning assets inside superannuation (or otherwise), contact our team today.

The post When should you take your superannuation benefits out of the fund? appeared first on Tony Kelly Lawyer & Estate Planner.

The Australian Government has proposed significant changes to how superannuation earnings are taxed for individuals with substantial retirement savings. Known as Division 296, this measure is set to impose an additional 15% tax on earnings related to the portion of a person’s total superannuation balance (TSB) that exceeds $3 million. While legislation is still pending, the likelihood of implementation means now is the time to understand your position and begin preparing, particularly with the guidance of an experienced estate planning lawyer.

Why This Matters

For individuals with large super balances, particularly those managing their own funds through a Self-Managed Superannuation Fund (SMSF), the proposed changes could substantially affect future tax outcomes and wealth planning strategies. It’s essential to consider how these reforms may influence not just retirement savings, but also succession planning and estate distribution.

Early planning, ideally ahead of the anticipated start date of 1 July 2025, may reduce the risk of unwanted tax consequences. The first assessment year is expected to be the 2025–26 financial year, giving affected individuals a limited window to consider proactive steps.

Key Features of Division 296

Here’s a simplified breakdown of what’s proposed:

1. Tax Applies to Unrealised Gains

Unlike traditional capital gains tax, Division 296 may apply to unrealised investment gains, that is, paper profits that have not actually been converted into cash. This could lead to individuals paying tax on asset values that may later fall, raising equity and liquidity concerns.

2. No Backdated Refunds for Losses

If your super balance later dips below $3 million, you won’t receive a refund of previously paid Division 296 tax. Instead, any negative earnings will carry forward to offset future Division 296 liabilities, although there’s no guarantee these losses will be fully utilised.

3. How the Tax is Calculated

The calculation process involves:

• Assessing earnings based on your super balance change (adjusted for contributions and withdrawals),
• Identifying the proportion of earnings above the $3 million threshold,
• Applying a 15% tax rate on that portion.

This is assessed annually and applies to the individual, not the super fund.

4. Tax Payment Options

Although calculated at the individual level, taxpayers will have the choice to either:

• Pay the tax out of their own funds, or
• Request that the tax be released from their superannuation account.

This added flexibility may help with liquidity management, especially where assets are illiquid or investment-heavy.

Timing is Everything

While it may be tempting to act immediately—by selling down investments or withdrawing funds—doing so before the legislation is finalised could backfire. For instance:

• Selling assets early might result in capital gains tax without necessarily reducing your Division 296 liability.
• Withdrawing super prematurely could limit your ability to re-contribute, particularly if the proposed laws don’t pass as currently drafted.

Instead, this is the time to assess your total superannuation position, model potential scenarios, and consider whether any changes to your investment strategy, contribution plans, or estate planning structures are warranted.

Reassessing Superannuation as a Tax-Effective Strategy

Despite the introduction of an additional tax under Division 296, superannuation may still represent one of the most tax-efficient structures for retirement savings. However, individuals approaching or exceeding the $3 million threshold should take this opportunity to review their investment strategies and consider whether diversifying into other vehicles—such as family trusts or non-super investments—could help balance tax exposure and long-term goals.

Every situation is unique, so this type of review is best conducted with expert guidance.

Talk to an Estate Planning Lawyer About Your Superannuation Strategy

Division 296 could have long-term implications not only for your superannuation but also for your broader estate and retirement planning. Whether you’re managing an SMSF or simply seeking clarity about how the proposed changes could affect your legacy and wealth distribution, speaking with a qualified estate planning lawyer is a smart move.

At our firm, our team of will and estates lawyers in Melbourne can provide tailored advice to help you prepare for what’s ahead. From assessing your exposure to Division 296 to reviewing your estate plan in light of these proposed changes, we’re here to guide you every step of the way.

Reach out today to speak with one of our experienced estate planning lawyers and make informed decisions for your future.

The post How to Avoid Division 296 Tax Changes appeared first on Tony Kelly Lawyer & Estate Planner.

A new case has expanded upon this decision. Re Rentis Pty Ltd [2023] QSC 252 focused on a deceased, Robert, who had appointed his wife and his brother as attorneys under a valid Enduring Power of Attorney. Importantly, his Enduring Power of Attorney gave his attorneys the express power to “renew any binding death benefit nomination” that he had made.

Robert lost decision-making capacity in 2020. His wife died in the following year.

Robert had previously made a BDBN allocating a portion of his superannuation death benefits to his wife. Following her death, Robert’s brother (acting as his attorney) updated Robert’s BDBN to divide his member death benefits between Robert’s children and Robert’s Estate.

The Court in Re Rentis considered whether such nomination was valid under the Attorney’s power to ‘renew’ a BDBN. On a strict interpretation of the word ‘renew’, such power could allow the attorney only to re-confirm an existing nomination in the same percentages, for example where a previous nomination had lapsed after three years.

The Court decided, however, that a narrow interpretation “would produce capricious, unreasonable and certainly inconvenient results”, and that such a power in an Enduring Power of Attorney should allow the Attorney to update the principal’s nomination when circumstances had changed (e.g. on the death of a beneficiary).

While such decision has not yet been tested in Victoria, we at Tony Kelly Lawyer & Estate Planner are pleased with this update. One issue of concern for us when assisting clients with their BDBNs is that many funds do not allow a ‘default’ or ‘two-tier’ nomination; that is, clients cannot dictate what should happen to their death benefits if their first choice of beneficiary predeceases them, and the client is unable to update their nomination due to incapacity or otherwise. Such a ‘default’ nomination is usually possible with a self-managed superannuation fund (SMSF) but our efforts to convince industry funds to adopt a two-tiered nomination form have so far been unfruitful.

Allowing a principal’s attorney to update the principal’s BDBN circumvents this issue, as the attorney can ensure a valid BDBN is still in place if the principal’s first choice of beneficiary has died and the principal no longer has capacity to update their own nomination. Above all, this decision underscores the need to have a robust and comprehensive Estate and Succession Plan in place that includes not only a Will and Binding Death Benefit Nomination but also Powers of Attorney.

If your Estate and Succession Plan does not include all of the above, we recommend that you contact us today to set up a no-obligation consultation.

The post Update – Superannuation Binding Death Benefit Nominations appeared first on Tony Kelly Lawyer & Estate Planner.

1. Who can receive my superannuation when I die?

Superannuation death benefits can only be paid to an individual if they are your dependant. For the purposes of the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’), a ‘dependant’ in relation to a person is:

• Their spouse;
• Their child (regardless of age); or
• A person with whom they have an ‘interdependency relationship’. Whether two people have an ‘interdependency relationship’ depends on the following factors:
  • They have a close personal relationship;
  • They live together;
  • One or each of them provides the other with financial support; and
  • One or each of them provides the other with domestic support and personal care.

Often, clients instruct us that they would like their sibling or parent to receive their superannuation when they die. Unless they have an ‘interdependency relationship’ with such family member, such relative cannot receive their superannuation directly. Clients can, however, make a nomination directing that their superannuation death benefits are paid to their Estate (i.e. to their Legal Personal Representative). Such death benefits will as a consequence of such nomination be distributed in accordance with the Deceased’s Will, with no restrictions as to who can receive them.

2. How do I “bequeath” my superannuation?

As indicated above, superannuation is held separately to your personal assets in a superannuation trust on behalf of the fund’s members, and so simply making a gift of your superannuation in your Will is not sufficient to deal with your death benefits. Instead, you must make a nomination directing the Trustee of your superannuation fund to pay your death benefits in accordance with your instructions.

The requirements for a nomination may vary according to the rules of the fund, but generally, in order to be binding, these nominations must be signed in the presence of two independent witnesses and submitted to the Trustee. If the Trustee does not receive your nomination before your death, it will not be valid and binding on the Trustee.

If your super fund permits, we recommend making your nomination non-lapsing, so that you do not have to renew it every three years.  We also recommend reading our blog post on the ability of your attorney to renew your nomination should you lose capacity to make decisions.

The nomination should be expressed in percentages to be paid to the eligible beneficiaries as explained above. For example, Naomi wishes to divide her superannuation between her children and her best friend Janet. Naomi makes a nomination directing her super fund to pay 33% of her death benefits to each of her two children. She also directs the fund to pay the remaining 34% to her Legal Personal Representative. Naomi then makes a Will, bequeathing any funds received from superannuation to Janet. On Naomi’s death, the fund will pay 34% of her death benefits to her Executor, who shall distribute the benefits in accordance with Naomi’s Will. This means that Janet will receive her share of Naomi’s superannuation death benefits, as per Naomi’s wishes, even though she is not a dependant of Naomi.

3. How are superannuation death benefits taxed?

We suggest obtaining specific financial advice as to the taxable and untaxed portions of your member balance to determine unequivocally how your death benefits will be taxed. As a general rule, however, death benefits paid to a tax dependant are not taxed. Please note that the definition of a tax dependant is slightly different to a SIS Act dependant, and includes only:

• A spouse or de facto partner
• A child under the age of eighteen
• Any person in an interdependency relationship with the Deceased

For benefits paid to adult children or your Legal Personal Representative (to be distributed under your Will to non-dependants), tax of 17% will apply to the taxable portion of the benefit. Any untaxed element will be taxed at 32% including Medicare levy.

Many clients are averse to paying such taxes on their superannuation (even though such payment will not occur until after they have died!). If you wish to minimise the taxation payable from your death benefits, you may consider nominating only tax dependants as beneficiaries, and providing for other family members through other means (such as your Will).

If you are of ‘preservation age’ (i.e. over 60), you may also begin withdrawing assets from your superannuation fund during your lifetime. Assets that have been removed from superannuation and that are in your personal name as at the date of your death will not incur the 17% tax, even if paid to a non-tax dependant from your Will. It is important to seek proper financial advice before deciding to draw down on your superannuation early for Estate Planning reasons.

It is also crucial that any such withdrawal requests are made in a timely fashion; if you die before the request is actioned by the fund, and the fund is aware of your death, the request may be treated as a payment of death benefits and taxed at 17%, rather than treated as a payment of a super benefit during your lifetime and not taxed at all.

4. What should I do next?

As a starting point, we recommend logging into your superannuation fund’s website (or otherwise contacting the fund) and confirming:

1. Whether you have a nomination in place;
2. Whether that nomination is binding; and
3. Whether the individuals you have nominated as beneficiaries are ‘dependants’ or your Legal Personal Representative.

If your answer to any of the above is ‘no’, we encourage you to contact us to discuss making a valid, effective Superannuation Binding Death Benefit Nomination. This document should be considered in tandem with your Will and wider Estate Plan. Our experienced and knowledgeable team can assist you in ensuring your superannuation death benefits (along with your other assets) are properly dealt with on your death.

The post Important considerations for your superannuation appeared first on Tony Kelly Lawyer & Estate Planner.

The proceeding involved a member of an SMSF who no longer had legal capacity, and the purported extension of the member’s expired BDBN by the holder of his enduring power of attorney signing a document referred to as an “extension of death benefit binding nomination form”.

The Court upheld this as valid based on the provisions in the member’s trust deed which expressly allowed a validly appointed attorney/s to exercise any power given to a member in the deed if the member had a legally recognized disability. Importantly, the Court also found the member’s financial enduring power of attorney did not contain restrictions on the attorney’s power, and ruled that the purpose of signing such an extension was in accordance with the member’s original wishes.

If you are a members of an SMSF, it is pertinent for you to consider the issues raised in this case and take a few simple steps to ensure the following:

• That there are provisions within your deed to avoid any costly and unnecessary complications by checking that the fund’s deed allows a member to make a “non-lapsing” BDBN so that it does not need to be renewed every three years and to prepare a BDBN accordingly;
• Consider whether you are comfortable granting your power of attorney the authority to make an amendment to your BDBN due to loss of mental capacity if circumstances were to change;
• If so ensuring that your power of attorney document provides an express clause in which the attorney’s power is addressed regarding your BDBN with any desired limitations, and
• Further, depending on circumstances and jurisdiction, it may also be necessary to provide a clause which expressly permits the attorney to defend any attempts by a party who objects to alteration of the terms of the BDBN by your attorney.

The post The Benefit of a Non-Lapsing Binding Death Benefit Nomination (BDBN) appeared first on Tony Kelly Lawyer & Estate Planner.