No one is ever ready or prepared when it comes to matters dealing with death. However, planning to avoid and minimize the costs of death tax on superannuation is key.
Always plan and devise strategies to protect your wealth and pass it on to your beneficiaries.
This article gives simple solutions for strategizing to avoid the death tax on superannuation and more insights. Let’s get right into it:
How to avoid death tax on superannuation
While Australia no longer has a traditional inheritance tax, we still have a similar tax on superannuation death benefits paid to grown-up kids, among other beneficiaries.
With us are some of the strategies you can put in place to help avoid these taxes as follows;
1. Nominate dependents as beneficiaries.
Planning on whom you want your superannuation death benefits go to will save your family from the tax hassles that come after death.
You can always nominate your beneficiaries, from kids and spouses to anyone of your liking who financially depends on you. Always ensure the list of nominees is up to date and legally bound by the law.
If you’re wondering whether the money will be taxed, you should know it is generally tax-free for beneficiaries.
2. Withdraw superannuation before death.
You can also consider timing by withdrawing your death superannuation money before you die. This will help you avoid tax charges associated with it.
The withdrawal can only apply to eligible individuals who have turned 65.
Also check: ATO on early superannuation withdrawal to see if you are eligible.
3. Use testamentary trust
Consider using a testamentary trust to help manage and distribute your benefits efficiently amongst your beneficiaries.
Through a testamentary trust, funds will be well distributed among beneficiaries, with a higher chance of reducing any tax liabilities.
A testamentary trust establishment will also ensure that each beneficiary can access their money as stated.
4. Consider re-contribution strategies
As re-contributions require extensive assessment and clarification, you can always seek professional advice from a qualified financial advisor or tax professional to proceed.
You can simply withdraw the funds and re-contribute them as non-concessional contributions. This will help you convert it to become tax-free. Also through re contribution, you can lower the chances of your non-dependent beneficiaries being taxed.
5. Review your insurance policy.
Ensure you have reviewed your insurance policy to minimize tax cuts that may increase taxation fees.
6. Seek professional advice
If you are in doubt or need clarification, it’s a good idea to seek advice from a professional financial professional who will guide and encourage you to make informed decisions.
FAQs
How much tax is payable on superannuation death benefits?
According to the ATO, the tax rate applicable to non-dependents is 15% for the axed element and 30% for any untaxed element.
