What happens to your super when you die? It might not be a question that has cropped up in many people’s minds. However, a death benefit is something that should be something that concerns you.
Upon the untimely death of someone, their superannuation may be one of the elements of the estate that can be bequeathed and divided between their loved ones (trustees of the estate and beneficiaries.
It is important to know that your will does not automatically include instructions on who receives your super. When you pass away, a binding death benefit nomination provides instructions to your superfund’s trustee, who should receive the balance. These payments are usually paid out in lump sum payments and split between beneficiaries as dictated by the deceased.
However, challenging the death benefits from superannuation and SMSF can occur like any property or asset. If you do not put the appropriate succession planning measures into place, it could become a legal quandary.
Death benefits are one of the most commonly occurring legal issues that plague individuals’ superannuation and SMSF sector. Many court cases involving death benefits are the result of poor succession planning. Individuals not included in the will but feel that they should have been may cause conflict.
How Super Is Paid – Death Benefit
In the event of an individual’s death, you can pay the deceased’s dependent a death benefit as either a super income stream or a lump sum. To pay the non-dependants of the deceased, it needs to be in a lump sum. The form of the death benefit payment (and who receives it) will depend on the governing rules of your fund and the relevant requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR).
If the deceased’s succession planning is in place around who they leave their superannuation, those classified as dependents and non-dependents can become legally blurred.
If you examine dependents under different sections of the law (superannuation law and taxation law), we will have different outcomes.
Who Are Dependants
Under superannuation law, a death benefits dependant includes:
- The deceased spouse or de facto spouse
- A child of the deceased (any age)
- A person in an interdependency relationship with the deceased (involved in a close relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other).
Under taxation law, a death benefits dependant includes:
- the deceased’s spouse or de facto spouse
- the deceased’s former spouse or de facto spouse
- a child of the deceased under 18 years old
- a person financially dependent on the deceased
- a person in an interdependency relationship with the deceased
The type of law under which the beneficiary is classified affects how they can interact with the death benefits.
How Do I Make Sure My Beneficiaries Will Receive The Death Benefits That I Want Them To Have?
As mentioned earlier, you will need to address who receives your superannuation separately outside of your will. If you fail to make a death benefit nomination, your super fund may decide who receives your super money. The trustee of the super fund has the power regardless of who is in your will.
That’s why succession planning is essential when it comes to death benefits, no matter the situation. You will want to prepare for any eventuality, even if you are at your healthiest.
To get your succession planning right, here are five tips that will help you during the process.
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- Locate and/or consolidate your superannuation funds – if you do not consolidate your funds, ensure a binding death benefit nomination (BDBN) in place for each fund.
- Prepare a BDBN – this is a notice you give as a superannuation fund member to the trustee of your super fund, nominating your beneficiaries on your death and how you wish to pay the death benefits.
- Seek advice before making changes to your level or type of insurance cover – you may be compelled to disclose medical conditions which may impact your ability to obtain cover or impact the cost of your cover if you remove or change your insurance cover.
- Review your binding death benefit nomination (BDBN) each year during tax time
- Seek advice on a superannuation clause under your will – though superannuation is not an estate asset, the death benefit may be paid to the estate under certain conditions, which you should consult with a super professional about.
