THE PROBLEM – SUPERANNUATION DEATH BENEFITS TO MINORS 

On a member’s death, it can be the case that the superannuation fund trustee wishes to pay the death benefit in favour of a minor child. Generally payments can either take the form of a pension (until the child turns 25) or a lump sum. 

An obvious problem is that: 

  1. a pension can only be paid until the child turns 25 (i.e. at this point in time, it must be commuted to a lump sum, unless the child is disabled); 
  2. paying a lump sum direct.  

The general position is that the passive income of minors is taxed at the highest marginal tax rate. 

SOLUTION – SUPERANNUATION PROCEEDS TRUST 

A Superannuation Proceeds Trust is a name to refer to a trust that is established under a person’s will in order to pay super death benefits for the benefit of the beneficiaries of the deceased’s estate.  This ensures that the benefit goes into a trust which produces ‘excepted trust income’ for the purposes of section 102AG of the 1936 Tax Act. The advantage of this is the child is taxed at adult tax rates, and not at penalty rates. 

PRECAUTION

It is important to ensure that a fundamental requirement of section 102AG are met, that is, the beneficiaries who are intended to be receive the superannuation proceeds must be an ‘absolute and vested interest in the trust property from the inception of the trust.