WHERE WILL YOUR SUPERANNUATION GO WHEN YOU DIE?

“This will help with certainty over your Estate Plans and alleviate any conflict that may arise between beneficiaries- ensuring your money goes exactly where you wanted it to…”

Author: Sarah Bowrey

One of life's biggest mysteries is what happens when we die. Although this may never be answered, what happens to our superannuation can be. 

Superannuation doesn’t automatically form part of your estate and can’t just be dealt with by your Will. Almost all of us have money in one or more superannuation accounts so it is important that you have the correct documentation in place to ensure that your superannuation is distributed according to your wishes. If your superannuation is held in a number of different funds, including Self-Managed Superannuation Funds (SMSF), then you need to consider the documentation requirements for each of those funds.  

There are also strict rules that must be met which can affect:

• Who can receive a payment
• The form in which payment can be received
• Timing of the payment
• How the payment is taxed

A Superannuation Death Benefit can only be paid to one or more of your dependants or your estate.

For superannuation death benefits, the term ‘dependants’ includes:

• your spouse or de facto (this includes same-sex de facto partners)
• your children*
• people with whom you had an inter-dependency relationship^†
• people who depend on you financially

The rules for payment of your superannuation death benefit are covered by the governing deed of the superannuation fund (if your superannuation account is held within an SMSF, then this deed is the SMSF Trust Deed) and if you haven’t correctly documented your wishes, the trustee of the fund generally has the discretion to determine who should receive your Superannuation Death Benefit when you die.

Subject to the terms of your SMSF Trust Deed, you can ensure payment goes to your nominated beneficiary by:

• Having a valid and current Binding Death Benefit Nomination in place;
• Specifying in your SMSF Trust Deed how death benefits will be distributed; and / or
• Nominating a beneficiary that your pension will automatically revert to at your death.

Additionally, in the specific instance of SMSF its also important to have considered who will control the fund after you are gone. Specific steps may need to be taken during your lifetime to manage the transition of control of the fund on your passing.

It’s important to ensure that both your estate plans and superannuation plans are comprehensive, up to date and the ownership and control of your assets are documented.

Payment of the Superannuation Death Benefit can be ‘cashed’ as a lump sum, a pension or a combination of both. The 'cashing' is required 'as soon as practical' which the Australian Taxation Office generally expects to be within 6 months of death unless the trustee can demonstrate valid reasons for the delay.

If the Superannuation Death Benefit is paid as a lump sum to a dependant of the deceased, no tax is paid as it's not included in the recipient’s income. If it is paid as an income stream (pension) or is paid to a non-dependant there may be tax to pay and the trustee of your superannuation fund will need to determine the taxable elements.

While thinking of all this may be daunting and less than appealing, it's important to remember that superannuation is likely to be one of your biggest assets (along with your house) at retirement, so it's vital that the correct precautions are taken.

To ensure that you have created a comprehensive SMSF Estate Plan, you should consult your legal advisor along with your accountant to review/prepare the following documents:

• An up to date Will
• An up to date Enduring Power of Attorney
• An up to date SMSF trust deed
• Up to date Death Benefit Nomination (if applicable)
• Up to date pension documentation (including any auto reversionary nominations if applicable)
• Review your trustee details (a corporate trustee enables the SMSF to continue to operate upon the death of a member)

It is important to review these documents regularly, especially if your circumstances change. This will help with certainty over your Estate Plans and alleviate any conflict that may arise between beneficiaries- ensuring your money goes exactly where you wanted it to.

[ENDS]

* (Child less than 18 years old/less than 25 years old and financially dependent on the deceased or has a disability)

^†(close personal relationship between 2 people who live together, support each other financially/domestically or personally)