Superannuation Death Benefits
One of the most important decisions you make when you join a superannuation fund has nothing at all to do with investment choices. Superannuation is a non-estate asset, meaning that it is not automatically distributed in accordance with terms in your Will. It is therefore important that you consider how and to whom you will leave your superannuation death benefits.
Who can receive your superannuation when you die?
Strict superannuation rules contained in the Superannuation Industry Supervision (SIS) legislation govern how your super is distributed consequent upon your death: it is extremely important to follow those rules to ensure your money is paid to whom you intended. Upon death, subject to the trust deed of the fund, your superannuation may only be paid to your superannuation dependants or to your estate.
Superannuation dependants include:
- Your spouse (including a de facto spouse),
- Your children (regardless of age),
- A person with whom you have an interdependency relationship*,
- A person who is financially dependent on the member (eg. family relative), and
- Your estate.
* An interdependency relationship applies where two persons, whether or not related by family:
- Have a “close personal relationship”; and
- Live together; and
- One or each of them provides the other with financial support; and
- One or each of them provides the other with “domestic support” and “personal care”.
The definition can also be satisfied if the two persons have a “close personal relationship” and the only reason they don’t satisfy the remaining conditions above is because either or both of them suffer from a physical, intellectual or psychiatric disability.
Death benefits paid to a tax dependant are tax free. To a non tax dependant, the taxable component of the benefit is taxed at 15 per cent, and the remainder is tax free.
Important Note: From 1 July 2007, death benefits are no longer able to be paid to a non-tax dependant as a pension. Non-tax dependants include adult children, unless they suffer a permanent disability, or are under 25 and financially dependant.
How can you ensure your super goes to the right person when you die?
Given the above definition of dependants, nominating beneficiaries of your super fund can be done by informing your fund of your intention. Depending on the trust deed of the superannuation fund, the nomination can be divided into two categories:
- Discretionary Nomination – is only a guide and the trustee of your superannuation fund will have the ultimate discretion as to which dependant will receive your super. The trustee will take into consideration any nomination of beneficiaries that you have made, but is not legally bound by your request.
- Binding Death Benefit Nomination – is a legally binding nomination as to which dependant(s) you want to receive your super. This will negate the discretion of the trustee of the superannuation fund to determine who your benefits are paid to upon your death. To be valid, a binding death benefit nomination must be signed by you and witnessed by two persons who are not beneficiaries of the nomination. Binding death nominations are usually only valid for three years and your super fund is obliged to write to you before the nomination expires to remind you to update it. (Some trustees have a less formal process to facilitate continuation of the nomination beyond the usual expiry date.)
What happens if I do not have any dependants?
Should you have no dependants as defined under superannuation rules and you want someone else such as a brother or a charity to receive your superannuation, you should consider nominating your estate as the preferred beneficiary of your superannuation entitlements. Your superannuation will then be distributed according to the terms of your Will.
Why is ongoing review important?
It is important to review death benefit nominations regularly to ensure that the people you wish to benefit in the event of your demise are currently nominated; and to include full details of your beneficiaries including their relationship to you, their full name and their address in your relevant records. Promptly informing your superannuation fund trustee of any changes to your beneficiaries (or changes to their personal details) will make the task of distributing your super much less complex for all involved.
Given the complex nature of Wills, superannuation death benefits and your personal circumstances, professional advice should always be sought from your financial adviser and an estate planning specialist.
Professional advice from the experienced advisers at Continuum Financial Planners Pty Ltd is readily available: to arrange a meeting, phone 07-34213456, or use the website contact us facility for prompt attention to arrange an appointment to discuss the most appropriate beneficiary nomination process for your Super account. Your best interests from a wealth management point of view will be served by our mantra – ‘we listen, we understand; and we have solutions’.
We acknowledge the resources of Securitor Financial Group Limited in drafting the majority of the detail in the above article: it has been extracted from the Support Information to advice documents. This article was originally posted on our website Library in March 2010: it has been refreshed and updated as at March 2014.