Written

For

The

Australian

-

At

death

super

is

exposed

to

an

effective

inheritance

tax

but

there

are

ways

to

minimise

the

hit

Here's a sobering thought: Australia might not have an official inheritance tax, but your super could still be hit with a 17 per cent tax slug when it passes to your adult children. Most retirees I speak to have no idea this is coming.

Benjamin Franklin was right about death and taxes — but he underestimated the situation. Taxes don't stop when we die. In fact, depending on how your assets are structured and who you leave them to, the tax office can keep collecting from the afterlife.

Here's the mechanics. If you leave your super to a "death benefit dependant" — spouse, de facto, kids under 18 or someone financially dependent on you — it flows through tax free. But leave it to adult children or grandchildren, and the taxable component (all those years of employer contributions and salary sacrifice) cops 15 per cent tax plus the 2 per cent Medicare levy.

In most families, this bites at the second death. Mum's super rolls to Dad tax free, then when Dad passes, the kids inherit — and the tax office takes its cut.

The workaround is elegantly simple. Once you're over 60 and retired, an account-based pension pays out tax free with no maximum withdrawal cap. If you know your time is limited, you can withdraw 100 per cent of your super tax free and gift it to your intended beneficiaries while you're still alive. They receive it tax free too.

But — and this is important — get legal advice first. In NSW especially, the "notional estate" rules mean disgruntled potential beneficiaries can claw back withdrawals made up to three years before death. Estate planning lawyer Peter Kernan warns the Supreme Court can reverse these transfers entirely.

There are also non-tax questions worth asking: is now a good time to sell down markets? And do you really want to hand a lump sum directly, or drip-feed it through a testamentary trust? Planning matters.