Nobody really likes to think about what will happen when we die, but there are very important conversations to be had with your loved ones and strategies to put in place so that the people you love are looked after the best way possible after you are gone.

A good example of the importance of this is to think about what will happen to your super when you die.

When you pass away, you may have a substantial amount of money in your superannuation account that will be distributed to your nominated beneficiary (see our related post about binding and non-binding nominations).

It is also important to think about the tax treatment of money left in your super account upon death.

Many people expect that this super will be paid out tax free. However, in fact, whether tax has to be paid depends on what the tax components of your super fund are and who is to receive the money.

The reality is that there is often tax to pay - and that tax could be considerable: on a superannuation account balance of $1.6 million, over $270,000 in tax could be owed.

That is a lot of money, which could potentially be in the pocket of your loved ones and not the tax office with some sound advice from an estate planning lawyer.

If tax is indeed payable upon death, one effective strategy for saving tax is to withdraw all funds from the superannuation environment prior to your death. If this is done, the funds will form part of your estate and can subsequently be paid tax free to beneficiaries.

This of course is seductively simple. One may pass away suddenly or slowly and with or without one’s wits.

If this strategy is to be considered, though, careful planning is required by you or by a person appointed to act on your behalf under an Enduring Power of Attorney.

Importantly, the timing of the withdrawal must be right. If it is processed after your death, the withdrawal will not be successful, since a super fund cannot pay a withdrawal benefit to a member if it is aware that the member has passed away.

This strategy can also be deployed for self-managed super funds.

If you want to minimise the tax payable on your superannuation account by your beneficiaries, or discuss how to use your Enduring Power of Attorney to look after this for someone who is not capable of sorting this out themselves, then please book an appointment with our Wills & Estate planning team.