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 not an estate asset, meaning that it does not automatically get distributed by your Will. It is therefore important that you consider how and to whom you will leave your superannuation benefits.
Who can receive your superannuation when you die?
Strict superannuation rules govern how your super is distributed when you are deceased and it is extremely important to follow those rules to ensure your money goes 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 is given 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:
- Nominated Beneficiary – 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 are not legally bound by your request.
- Binding Death 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 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.
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 and to include full details of your beneficiaries including their relationship to you, their full name and their address. Keeping your superannuation fund trustee informed 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.
Professional advice from experienced financial planners is available through our company: contact us for a meeting to discuss the most appropriate beneficiary nomination process for your Super account – the first meeting will be at our cost.
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.
2042 Logan Road, Upper Mount Gravatt Brisbane, QLD, 4122 Australia
adviser @ continuumfp.com.au • 07 3421 3456