Can I choose who receives my superannuation when I die?

The short answer is yes, but the legal answer is ‘it depends’.  Superannuation can’t be included in your Will unless you’ve given your super fund specific instructions first.  To ensure your super will be included in your estate, you must nominate a beneficiary directly with your fund.

Your super is not typically covered by your Will because it only covers assets you own – things like your house, car, investments, savings and personal items. Your super is held for you in a trust by the trustee of your super fund and governed by superannuation law, which is why different rules apply.

Who can I leave my super money to?

In the event of your death, your super fund must pay your super funds to people in your life who are eligible.  This may include:

  • Your spouse or partner
  • Your children
  • Anybody financially dependent on you when you die
  • Your estate or personal legal representative.

One reason you might nominate your estate or personal legal representative is you can then specify in your will how you want to distribute your super money to, which can include eligible beneficiaries, as well as other people in your life.

It’s important however that you ensure the information stated in your will is up to date so your personal legal representative pays out your super money as per your instructions.

It is also important to consider tax consequences which are discussed below.

 

How do I nominate beneficiaries?

When it comes to specifying your beneficiaries, most super funds will give you several options.

These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.

1. Binding nomination

If you make a binding nomination that satisfies all legal requirements, the trustee of the super fund is legally bound to pay your super to the person/s you have nominated and in the proportions specified.

There are lapsing and non-lapsing binding nominations.

Lapsing nominations typically expire every three years – so you must fill out a new beneficiary nomination form every three years (annoying!) If you have chosen to set a lapsing binding nomination, then you must ensure your superfund has your correct contact details so they can let you know when it is going to expire.

Non-lapsing nominations never expire, so you do not have to keep filling out forms every few years.  Most Fortress clients chose to nominate non-lapsing, binding beneficiaries.   That way, there is nothing further to do unless they change their mind about who to leave their super to in future.  If that happens, they simply fill out a new non-lapsing, binding beneficiary nomination form.

2. Non-binding nomination

A non-binding nomination is more like a suggestion… the trustee is not legally bound to give your money to the person you have nominated.  The trustee will decide which beneficiaries receive your super and in what proportions, but your nominations will be considered. This is better than nothing, but certainly not preferred.

3. No nomination

Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its “discretion” to determine which beneficiaries the money should go to.

So, the question becomes, would you rather a stranger decides who your super goes to, or you?  Remember that superannuation is usually one of a person’s largest assets, so you may be talking about hundreds of thousands, or millions of dollars (if you included insurance).

 

Will my beneficiaries be taxed if I leave them my super?

Different tax treatments apply depending on whether your super is paid as a lump sum, income stream or mixture of both, and if your beneficiaries are classified as ‘tax dependants’ or ‘non-tax dependents’.

A tax dependant includes:

  • current and former spouses and de-factos
  • any children of the deceased who are under the age of 18
  • any other financial dependants.

We typically prefer our clients to leave super to these people as it creates a better tax outcome, however you must consider if those people (e.g. children under 18) have the capability to handle that money wisely.

1. Paying super as a lump sum

Lump sum super benefits, paid upon your death to tax dependants directly (or via your personal legal representative) are usually not taxed, whereas super benefits paid to non-tax dependants may be.

For non-tax dependants, tax will only be payable on any taxable component of the lump sum.  The taxed element is subject to a maximum tax rate of 15% plus the Medicare levy. The untaxed element is subject to a maximum tax rate of 30% plus the Medicare levy.

Note, an untaxed element will typically only arise where the death benefit includes proceeds from a life insurance policy held by the fund, or where the death benefit is being paid from an untaxed super fund, for example certain government sector super funds.

2. Paying super as an income stream

Where the death benefit is paid in the form of an income stream (this is common for pension accounts), the tax treatment depends on the age of the deceased and or the age of the beneficiary.

If super is paid from a taxed super fund—and you & the beneficiary is aged 60 or over at the time of your death—it’ll be tax free.5

If you’re both under age 60 at the time of your death, the taxable portion of income stream payments will be counted as assessable income for your beneficiary, but they’ll be entitled to a tax offset equal to 15% of this amount. When they turn 60, the income stream will become tax free.6

If the death benefit pension however is paid from an untaxed fund, the taxable portion of pension payments received by a beneficiary under age 60 (where you’re also under age 60 at the time of your death) will be taxed at the beneficiary’s maximum tax rate, with no tax offset.

If you or your beneficiary are over age 60 at the time of death, the taxable portion of pension payments will be eligible for a 10% tax offset.

 

 What do I do now?

A financial adviser can assist you with all the aspects of your superannuation.  At Fortress, we regularly help clients review their superannuation.  A big part of that process is to assist our clients to complete a non-lapsing, binding beneficiary nomination so they do not have to worry about what happens to their super when they die. We also work with your lawyer to ensure our plans match your estate plan.

If do not wish to engage the help of a financial planner, you may need to ring your super fund or download the necessary forms from their website.  To ensure you have binding nomination arrangements in place for your super money:

  • Check your super fund allows binding nominations
  • Check the beneficiaries you wish to nominate are eligible
  • If you plan to nominate your estate, make sure your Will is up to date
  • Complete and sign a non-lapsing binding nomination form— usually in the presence of two witnesses who are over 18 and not beneficiaries—and send the form to your fund
  • If you wish to make a lapsing nomination, make sure your contact details are up-to-date so your fund can contact you to renew your nomination before it expires.
When choosing witnesses, ensure:
  • They are over the age of 18;
  • They are not beneficiaries (e.g. if John is nominating his wife Jane to be the beneficiary of his super, Jane cannot witness John’s nomination form); and
  • They must witness you signing (the super fund will check to ensure both you & your witnesses signed the form on the same date).

When you’re considering who you’re going to leave your super to, it’s important to think about the people who matter most and how tax implications may affect the amount they could receive.

 

To review your superannuation, or for assistance with nominating a beneficiary, please book online or contact us at info@fortressfs.com.au 

Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Complied by Emma Linton Doig, Practice Manager

1-7 https://www.ato.gov.au/Super/APRA-regulated-funds/Paying-benefits/Paying-superannuation-death-benefits/

Information on this site may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.

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