An increasingly important aspect of our wealth management journey in Australia is the understanding and management of superannuation benefits – particularly the superannuation death benefits. It is a much-overlooked aspect of Estate Planning: one that we commend be undertaken by every asset owner, regardless of age, accumulated wealth, or health condition. Lack of attention to how your super death benefits are to be applied, may deprive your resultant beneficiary/ies of a significant part of the superannuation that you anticipated they would have, following your passing (as they share your generosity with the tax man).There are several ways that the residual balance of superannuation accounts can find their way to beneficiaries of the account holder: 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, but on the death of the account holder is challenged by persons other than the nominated beneficiary;
- According to the direction of the account holder using the medium of a Binding Death Benefit Nomination (and 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 reversionary pension payments (in eligible circumstances). The amount of tax and the timing of the payment of the tax, vary with the circumstances: when considering 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, even the trustees of any self-managed super fund. We have published a couple of articles on this topic that will suffice to clarify some of the pitfalls: you might find these interesting –
Binding Death Benefit Nominations
You should be aware that in most cases, Binding Death Benefit Nomination are only effective for a period of three years; and 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. (You should also ensure that each fund’s trustee has recorded your Binding Death Benefit Nomination.)Members of self-managed superannuation funds should be aware of the provisions of their controlling Deeds, but 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.
Death Benefit/ Reversionary Pension
Pensions can be paid from Superannuation Death Benefits but only in particular circumstances. The effect of this is that the continuing pension remains tax free and can be paid for the life of the (eligible) beneficiary, i.e., a SIS Dependant. 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 (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 Continuum Financial Planners website in March 2023: it will be updated or refreshed as required over time.)
