In situations where elderly parents are living with their adult children, it is possible for the child to receive their parent's superannuation tax-free upon their death. However, there are certain criteria that must be met, and it can be a complex process.
According to SuperCentral, an adult child can receive their parent's super if they were a "financial dependent" of the parent or had an interdependency relationship with them at the time of their death. To prove an interdependency relationship, four criteria must be met.
Firstly, both the adult child and parent must have had a close personal relationship, with ongoing commitment to emotional support and well-being. This can be satisfied through a shared life or regular phone calls and outings. Secondly, they need to have lived together long-term, with elements of a shared life such as eating and entertaining together.
Thirdly, both parties need to have financially supported each other, whether or not they are financially independent. Finally, at least one party needs to have given domestic support or personal care, such as shopping, house cleaning, and helping with medical appointments or emotional support.
The trustee of the super fund paying the benefit determines the relationship. If it's a self-managed super fund (SMSF), the trustee needs to provide detailed information justifying the relationship. In this case, it might be wise to seek a Private Binding Ruling from the Commissioner of Taxation, which requires a lot of documentation to support the four criteria above being met.
Alternatively, the trustee can pay the death benefit to the beneficiary on the idea that an interdependency relationship didn't exist. When the beneficiary goes to lodge their tax statement, they can then object the return and claim the death benefit isn't taxable income because it there was an interdependancy relationship.
So yes, it is possible for your adult child to inherit your super tax-free, but it does require both of you meeting strict criteria and a lot of documentation to support the claims. Make sure you reach out to an advisor for advice.
