Blended Families, SMSFs and Why Your Will May Not Be Enough
In Part 1 of this series, we explored why the proposed Division 296 tax is much more than a superannuation issue—it can also have significant estate planning consequences.
Now let’s look at some of the situations where careful planning becomes even more important.
Blended families and unequal inheritances
Blended family arrangements often involve carefully balancing the interests of a surviving spouse with children from a previous relationship.
For example, a client may intend to:
- Leave superannuation to their spouse.
- Leave other estate assets to their children.
- Protect family businesses.
- Use testamentary trusts for children or grandchildren.
- Ensure different beneficiaries receive equivalent value.
On paper, these arrangements may appear fair.
However, if a Division 296 liability arises after death and the wrong beneficiary ultimately bears that cost, the intended balance between family members can quickly be lost.
Reviewing your estate planning documents now can help avoid unintended consequences later.
SMSFs holding property or other illiquid assets
Many SMSFs hold valuable but illiquid investments, including:
- Commercial property
- Business real property
- Farming land
- Private company shares
- Unlisted investments
- Concentrated share portfolios
When a member dies, the fund may need to pay a death benefit while also managing taxation obligations.
If there isn’t enough cash available, assets may need to be sold unexpectedly, potentially creating liquidity issues, valuation concerns and additional tax consequences.
Planning ahead can help minimise these risks.
Reversionary pensions should also be reviewed
Reversionary pensions continue automatically to a surviving spouse and remain an important estate planning tool.
However, following the introduction of Division 296, they deserve closer review.
A surviving spouse who previously sat below the relevant threshold may suddenly find themselves above it after inheriting a large pension.
That doesn’t necessarily mean a reversionary pension should be avoided, but it does mean every arrangement should be reviewed in light of your overall estate planning objectives, family circumstances and taxation position.
Your Will may not control your superannuation
One of the most common misconceptions is that your Will determines who receives your superannuation.
In many cases, it does not.
Superannuation is generally distributed according to the rules of your superannuation fund and any valid Binding Death Benefit Nomination or other fund documentation.
This means your Will and your superannuation documents need to work together.
Reviewing only one without considering the other may leave significant gaps in your estate plan.
What should be reviewed now?
If your superannuation balance is approaching or exceeds $3 million, now is an ideal time to review your estate planning documents.
This review should include:
- Your Will
- Enduring Powers of Attorney
- SMSF Trust Deed
- Pension documentation
- Reversionary pension arrangements
- Binding Death Benefit Nominations
- Trustee succession arrangements
- Company constitutions
- Family trust deeds
- Tax adjustment clauses
- Beneficiary indemnity clauses
- Liquidity planning
The goal is simple—to ensure your estate plan reflects your wishes and that taxation consequences are allocated fairly between beneficiaries.
Division 296 represents more than a new tax. For many Australians, it is a timely reminder to ensure their estate planning remains current, coordinated and fit for purpose.
Need advice?
If you’re concerned about how the proposed Division 296 changes may affect your superannuation or your estate planning, Hill Legal can provide practical advice tailored to your individual circumstances.
Call our team on (03) 5976 6500 or contact us through our website to arrange a consultation and ensure your estate plan is ready for the changes ahead.
