Upon the death of a person, if they had superannuation (whether in a self-managed superannuation fund (SMSF) or in an industry fund such as QSuper or Australian Super), the balance of their superannuation along with any life insurance component is referred to as their ‘superannuation death benefit’.
A superannuation death benefit is separate to a person’s personal assets. The funds do not automatically form part of a person’s estate upon death.
A superannuation death benefit is dealt with is in accordance with the fund’s governing terms or trust deed and the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).
Generally speaking, the rules may provide the member with an option to preparing differing types of nominations when it comes to their superannuation death benefit. These may include:
- Binding Death Benefit Nomination
- Non-Binding Death Benefit Nomination
- Non-Lapsing Binding Death Benefit Nomination
In the absence of having a Binding Death Benefit Nomination (i.e. in the case of 2 and 3), it will be left to the trustee of the fund to determine who will receive the superannuation death benefit.
To bind the trustee of the fund to pay the superannuation death benefit to a preferred beneficiary, the member may do so by completing a Binding Death Benefit Nomination.
Under the SIS Act, you are only entitled to nominate the following in your Binding Death Benefit Nomination:
- a superannuation death benefit dependent – which includes a spouse, child, a person financially dependent on the deceased or a person in an interdependent relationship with the deceased; or
- the legal personal representative – this is the executor or the administrator of the deceased member’s estate. If your superannuation funds are paid to a legal personal representative the funds will be paid to them to hold on trust for the estate of the member and distribute in accordance with the Will or upon the laws of intestacy.
It is important to keep in mind that tax may follow the nominated beneficiary.
Only certain superannuation death benefit dependents are considered ‘tax dependents’. Accordingly, if the beneficiary nominated is not a ‘tax dependent’ as well, the beneficiary will be liable to pay tax.
Only spouses, children under the age of 18 years, a person in an interdependent relationship with the deceased member or a financial dependent are considered ‘tax dependents’. If nominated (whether directly or as a beneficiary Will or under intestacy) they will receive the superannuation death benefit tax free.
If the beneficiary is not a tax dependent, they will be liable to pay tax. The rate of tax will generally be between 15 – 32% (including the Medicare Levy) depending on the taxable and non-taxable components of the member’s superannuation. It should be recommended to the client to check with their accountant as to what rate of tax may apply.
If you need any assistance with the above, please contact our team today.
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