The hidden tax trap in your estate plan: why super needs special treatment

Many people think their super automatically goes to their loved ones tax-free when they pass away, but it’s not that simple. Without the right planning, your super can be taxed or exposed to claims from third parties. A Super Proceeds Trust (SPT) helps avoid this by making sure your super is passed on in a tax effective way, while also protecting your beneficiaries from financial risks.

What is a Superannuation Proceeds Trust? 

A SPT is a special kind of trust that’s included as an option in your Will.  It’s designed specifically to receive your superannuation death benefits paid into your estate (including any life insurance held inside your super fund) when you pass away.  

Its main job? To make sure those funds go to the right people in a tax-effective and protected way. 

 

Why do you need an SPT? 

Not everyone can receive superannuation death benefits tax-free.  According to Australian superannuation law, only certain people such as your spouse, your former spouse, children under 18, children between 18 and 25 who are financially dependent on you or someone with whom you are in an interdependent relationship with you at the time of your death, qualify as both a dependent under both superannuation law, i.e as a ‘SIS dependent’ and under taxation law, i.e., a ‘tax dependent.’  If your super goes to someone outside that group (such as adult children, another relative or a charity), the ATO may take up to 30% in tax. 

This is why provisions in your Will that simply direct your super into a standard testamentary trust with a broad class of potential beneficiaries, is not sufficient.  In such a case, there’s a real risk the tax-free treatment won’t apply, even if the money ultimately ends up with someone who is a SIS dependent and tax dependent. 

Don’t leave your loved ones with an unexpected tax bill. An SPT helps ensure your super is distributed tax-free to the right people. Call us on 1300 654 590 or email us to find out if an SPT should be part of your Will.

 

How does an SPT work? 

An SPT is set up in your Will and acts like a dedicated bucket just for your superannuation death benefits.  The key difference is that it limits the potential beneficiaries of the trust to people who meet the super law and tax law definition of a dependant.  Because of that restriction: 

  • The tax-free status of the death benefit is preserved 
  • Your estate is protected from paying unnecessary tax; and 
  • The distribution of your super can still be managed over time through a trustee. 

 

What are the advantages? 

SPT therefore have the advantage of: 

  • Tax Efficiency: Ensures that eligible beneficiaries receive your super tax-free; 
  • Control: Gives your trustee the ability to manage and distribute super proceeds to eligible beneficiaries on terms specified in your Will; and 
  • Protection: Protects the SPT assets from potential third-party claims (e.g. creditors). 

 

Who should consider an SPT? 

An SPT can be a smart addition to your estate plan if: 

  • You have super and tax dependents; 
  • You want to preserve the maximum value of your super for your loved ones; and 
  • You want to structure distributions over time, rather than all at once. 

 

Talk to us about super and your estate plan 

At ADLV Law, we help families make the most of their superannuation, not just during life, but after death.  If you want to ensure your super is passed on in a tax-smart, protected way, an SPT could be the right solution.  Speak to one of our experienced lawyers on 1300 654 590 or email us.  Super doesn’t automatically go where you think. Let’s make sure it does.

The information contained in this post is current at the date of editing – 16 May 2025. 

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