You normally can’t use your super until you reach your preservation age but there may be a way to have your super released early if you meet an eligibility requirement. In relation to estate planning the relevant tests would include;
- On compassionate grounds.
- You have a terminal illness.
Access on compassionate grounds
It may be possible to withdraw some of your super on compassionate grounds which can include paying for expenses associated with a death, funeral or burial.
The amount of super that you can withdraw on compassionate grounds is limited to what is reasonably needed. A super withdrawal on compassionate grounds is paid as a lump sum after tax has been withheld. If you are under 60 years old, this is generally taxed between 17% and 22% which will depend on a variety of factors. If you are over 60 years old, you will not be taxed.
If you are a member of an Exempt Public Sector Super Scheme you need to apply directly to your scheme for early release of superannuation as there will be specific rules in relation to early release of superannuation
Access for compassionate reasons requires that the Department of Human Services (DHS) is satisfied that your application meets the eligibility criteria.
If you are consider to meet the grounds of “compassion” you will be allowed to withdraw some of your super for paying for expenses associated with a death, funeral or burial of a dependant. As access is only granted to help you cover unpaid costs if you’ve already paid those costs, even by using a loan or credit card, you won’t be able to access your super.
You may be able to access your super if you have a terminal medical condition (TMC) as assessed by the tax office. From a tax perspective a TMC requires the following evidence;
- two registered medical practitioners must certify, jointly or separately, that you suffer from an illness, or have an injury, that is likely to result in death within a period (certification period) within 24 months after the date of the certification
- at least one of the registered medical practitioners is a specialist practising in an area related to your illness or injury
In the first instance you should contact your super fund to request access to your super due to a terminal medical condition. Any payment from the superfund will be as a lump sum fund and will be tax-free if you withdraw it within 24 months of certification.
Some superannuation funds may not allow access to your funds due to a terminal medical condition, in which case you may consider moving your super to a different fund. However this may result in the cancellation of life insurance so you should seek advice from a financial planner before changing funds.
You do not pay tax on super that you withdraw because you have a terminal medical condition regardless of your age or whether it would normally be taxable.
If you need an early release of super to pay for palliative care, you can apply directly to your super fund and do not need to submit an application to DHS. The fund can release the money when you have a terminal illness and you won’t pay any tax on this amount, however in contrast applying through DHS may result in the need to pay tax on the money you access.
The requirements for accessing superannuation to pay for palliative are that firstly you need help paying for palliative care and secondly you can’t pay any other way ie loans, investments etc
If your application is successful, you can access enough of your super balance to cover reasonable costs however it is unlikely to be successful if you or your dependant don’t have a terminal illness the real issue is an inability to meet living expenses.
Fortunately a partner is automatically considered to be a dependant otherwise it is necessary to provide evidence that they person is dependant upon you for domestic, personal or medical care. There are evidentiary requirements as well as you need to provide unpaid invoice and quotes and account for possible health insurance rebates.
Early release of super may also be possible if you need to cover the cost of a dependent’s funeral and you don’t have any other options for payment. You’ll need to apply to the DHS to let your super fund release money to cover reasonable costs, which include expenses such as the funeral service and headstone but not the wake.
This concession doesn’t apply if you are applying in relation to someone who was not a dependant, the funeral has already been paid or you are trying to prepay your own funeral.
As with other categories, evidence of unpaid invoices or quotes need to be provided as does evidence of dependency.