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Superannuation proceeds trusts: can you establish one after a client’s death?

By Bryce Figot ([email protected]), Special Counsel, DBA Lawyers

(Note: this article is only a very brief discussion of one aspect of superannuation proceeds trusts — for a complete guide to superannuation proceeds trusts, see https://www.dbalawyers.com.au/dba-news/the-complete-guide-to-super-proceeds-trusts/)

In this article I discuss whether a superannuation proceeds trust can be set up after death.

However, first I pause to explain what I mean when I say ‘superannuation proceeds trust’. It does not have a fixed constant normative meaning. Accordingly, different people might mean different things when they use the term. I use the term to mean a trust that receives the income tax concession under s 102AG(2)(c) of the Income Tax Assessment Act 1936 (Cth).

This concession principally relates to minors receiving unearned income yet being taxed at adult rates.

Therefore, the concession is relevant for succession planning for clients with minor children. Naturally, such clients tend to be younger and are less willing to engage in extensive and complex succession planning projects.

However, when such clients die unexpectedly, the adviser might have to determine whether a superannuation proceeds trust can be set up after their death.

The short answer is that it can.

However, there is a catch. The catch is that the legislation requires that in order for the tax concession to apply, the income must be ‘… derived … from the investment of … property transferred to the trustee [of the superannuation proceeds trust] …directly as the result of the death of a person and out of a … superannuation … fund’ (emphasis added).

Consider the situation where a 40 year old father dies unexpectedly and the trustee of a superannuation fund has already paid the death benefit out. Then the widow sees you the adviser and you consider whether a superannuation proceeds trust can be set up with the money received from the superannuation fund. It is difficult to say with complete confidence that this would satisfy the ‘directly’ requirement.

Please note that I am not definitely saying that it can’t satisfy the ‘directly’ requirement, but the question certainly becomes problematic.

Accordingly, superannuation proceeds trusts can be set up after someone’s death, but — if so — the best time to do so is before any superannuation fund trustees have paid superannuation death benefits.

Again, this article is only a very brief discussion of one aspect of superannuation proceeds trusts — for a complete guide to superannuation proceeds trusts, see https://www.dbalawyers.com.au/dba-news/the-complete-guide-to-super-proceeds-trusts/

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

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