Around 2,500 Self-Managed Super Funds (SMSFs) are being set up every month with an average balance of $454,000, according to the Self-Managed Super Fund Professionals’ Association of Australia.

But care is needed. Lifeplan Funds Management says SMSF owners may unwittingly saddle their beneficiaries with an unexpected tax liability of tens of thousands of dollars. Alison Massey of Lifeplan says  many investors and their advisers are unaware of this “death duty in disguise”.

“There is a misconception that only income is taxed, but the capital value of the entire death benefit paid to the beneficiary may be subject to tax,” she says.

Those most affected are SMSFs that have reached the pension phase of paying out funds to support fund members. While SMSFs are exempt from capital gains tax, these exemptions immediately cease when the last member in the fund dies.

“Super is not designed for inter-generational wealth transfer and investors and their advisers should consider the implications of CGT applying to funds in a SMSF,” Massey says.

Until now, a testamentary trust has been a way investors have tackled this problem, adding complexity and expense to estate planning. Ms Massey says that Lifeplan has created a structure that eliminates the surprise “death duty” that applies to funds transferred to non-dependents from a SMSF.