Tuesday, June 2, 2015

Why superannuation proceeds trusts should only be an avenue of last resort

2014 post touched on the use of a superannuation proceeds trust (SPT) - http://blog.viewlegal.com.au/2014/09/what-are-superannuation-proceeds-trusts.html.

The question arose because of a decision to avoid establishing testamentary trusts on the death of one spouse. 

As identified recently by one adviser we work with, such an approach was arguably not appropriate in all the circumstances because:  

  1. SPTs are generally a structure of last resort.  This is for a combination of reasons, not least of which because under superannuation law there is no clear pathway to allow a superannuation trustee to distribute to a SPT; and 

  1. Conversely under taxation law, unless the money passes directly from the superannuation fund into the SPT, there is a real risk that the Tax Office will not allow access to the excepted trust income provisions. 

For these reasons it is generally preferable that the funds are paid to the legal personal representative and then distributed under the will into a testamentary discretionary trust which is crafted in a way to create a 'sub-trust' in relation to the superannuation proceeds. 

This approach ensures that the surviving spouse will have the flexibility to have all funds in a trust environment while also ensuring the proceeds are received tax free into the estate. 

Image credit: Alan Cleaver cc