An increasingly important aspect of wealth management in Australia is the understanding and management of superannuation. The taxation and other implications of superannuation death benefit nominations are often misunderstood. And they are a much-overlooked aspect of Estate Planning. Regardless of your age, accumulated wealth, or health condition, your superannuation death benefit nominations should be reviewed regularly.
Inadequate attention your superannuation death benefits nomination may result in less than optimal benefit to the beneficiary. It may deprive them of some of your generosity – in favour of the tax man!
How superannuation death benefits may be distributed
There are several ways that the residual balance of your superannuation accounts can find their way to your beneficiaries. They include –
- Trustee discretion, where no nomination has been made (often resulting in the account balance being paid into the Estate);
- Trustee discretion, where the nomination made is not a binding nomination. Unrestricted discretion for the trustee may leave open challenges from persons other than the nominated beneficiary;
- According to the direction of the account holder using the medium of a Binding Death Benefit Nomination. (This should be kept current); or, in appropriate circumstances, via
- Reversionary pension benefits.
The taxation implications in each of these scenarios are different, though guided by the same principles. Superannuation death benefits paid to a ‘SIS dependant’ will be tax free, as will eligible reversionary pension payments. The amount of tax and the timing of the payment of the tax, vary with the circumstances. When considering beneficiary nomination arrangements, the advice of an experienced financial planner will be invaluable.
We caution clients to beware leaving the payment of super death benefits to trustees. And this concern exists even if directed to the trustees of a self-managed super fund. A couple of articles on this topic that have been published on our website regarding these perils, include –
Binding Nominations
You should be aware that in most cases, Binding Death Benefit Nomination are only effective for a period of three years. In the absence of a renewal, the trustee will treat any death benefits as discretionary – which may not suit your intentions and may disrupt your Estate Planning. Each fund’s trustee has should record and acknowledge your Binding Death Benefit Nomination. As a member of a self-managed superannuation fund, you should be aware of the provisions of their controlling Deeds. You also have an obligation to ensure that all arrangements are maintained, reflecting current intentions.
This article that we published in our website library some time ago explains this aspect of superannuation and estate planning.
Reversionary Pension
Pensions can be paid from Superannuation Death Benefits but only in particular circumstances. A continuing pension will only remain tax free in eligible circumstances, and can be paid for the life of the beneficiary. A SIS Dependant is an example of an eligible beneficiary in this situation. Others can benefit by way of a pension, but tax may apply (to the Taxable Component of the superannuation balance funding the payment).Reversionary pensions (whereby the pension payable to the account holder up to the date of their passing) reverts to their spouse or other eligible dependant, who include –
- your spouse
- your child under 18
- a financial dependant (at the time of your death), or
- a person who is in an interdependency relationship with you. (This needs to apply both at the time of nomination and at the time of your death).
Estate Planning, Wealth Management and Death Benefits
The Continuum Financial Planners advisers are experienced in providing financial advice in a wide range of scenarios: wealth accumulation, financial goal setting, retirement, superannuation, estate planning, debt management. Their services include analysis and review of your personal and family situations, assisting you to define your financial goals and objectives and to recommend strategies by which your goals and objectives can be achieved.
Increasingly, the advice sought from the team involves superannuation – how best to contribute to it, how to determine appropriate investment of the accumulated fund, and how to ensure that the funds benefit those you intend, in the most tax-effective way.
For your consultation with them, call the office to arrange a meeting (phone 07-34213456), or Contact Us via our website.
(This article was first published on the ContinuumFP website in March 2023: it was updated/ refreshed in August 2024.)
