Probate series – part 4: superannuation and tax considerations for executors

By William Moore and Sam Baring

Executors often find themselves also in the shoes of being trustee of a self-managed superannuation fund (SMSF) – isn’t that super?!

In our final part of this series, we discuss superannuation and the other tax considerations for executors to be aware of when dealing with the administration of an estate, and avoid an unwanted liability hanging over their heads.

SMSF

In instances where a SMSF is involved, it is the trustee of the SMSF and not the executor of the deceased’s Will who has the power to deal with a member’s superannuation benefits. However, in practice, often the executor and trustee (or director of the trustee company) of the SMSF end up being the same person.

Some of the key issues that executors need to be aware of if they are also dealing with SMSFs include:

1. arranging the transfer of the shareholding in the trustee company in accordance with the terms of the deceased’s Will;
2. making a determination to pay superannuation death benefits in accordance with any binding or non-binding death benefit nominations, and considering the most appropriate structure of the payment (where there is a non-binding nomination in place);
3. arranging for the commutation and payment of any pension accounts (noting that if the deceased had a reversionary pension in place you will have 12 months from the date of his or her death to complete this, whereas if no reversionary nomination was in place then the trustee/executor will have a fiduciary duty to make payment of the benefits ‘as soon as reasonably practicably’ (which is generally considered to be six months); and
4. if the death benefit is paid to a non-dependant or the trustee of a deceased estate, there may be tax to pay, ensuring there are enough funds held over to meet tax liability once the death benefits are distributed.

Tax considerations

There are a number of other instances where executors need to be aware of taxation in respect of administering an estate. Depending on the overall composition of the estate assets, these may include:

1. arranging the final tax return for the deceased, and if required a trust tax return for the estate;
2. considering the tax implications for different beneficiaries of the Estate, which may differ depending on various factors including the type of asset they are receiving (such as cash, superannuation benefits or in specie property transfers), or if they have unusual tax profiles due to a legal disability or a foreign residency (CGT Event K3); and
3. in respect of real property that forms part of the estate, any opportunities to minimise the amount of tax payable through the application for duty exemptions with the State Revenue Office (such as an exemption from duty for an in specie transfer to a beneficiary of the Will under Duties Act 2000 (Vic)) or reduce, defer or disregard a capital gain or capital loss through a CGT rollover with the ATO.

An executor that is well organised and aware of the many administration issues they face, and various exemptions available to them when administering an estate, is able to limit the amount of tax payable and provide the maximum benefit to those beneficiaries of the estate after the death of a loved one.

Hall & Wilcox assists clients with estate administration every day, with extensive experience in advising executors and trustees regarding superannuation and tax. If a client or someone you know needs assistance with the estate administration process, our Private Clients team can assist with any questions.