What is a death benefit nomination?
A death benefit nomination is a formal nomination by a member of a superannuation fund, made to the trustee of that fund, as to who shall be the intended beneficiary of their superannuation benefits, upon their death.
Depending on the terms of the superannuation fund trust deed the nomination can be binding or non-binding and lapsing or non-lapsing.
Before making a death benefit nomination the trust deed of the fund should be reviewed to check whether nominations are allowed to ensure the proposal is appropriate and complies with the requirements of the fund. Most retail and industry funds will have a nomination form they will require be completed. We recommend asking for that nomination form rather than trying to do it yourself.
Self-managed superannuation funds may have a nomination form annexed to their trust deed, or else they will have the requirements for a nomination set out in the body of the trust deed. It is therefore important to review the trust deed carefully.
Is tax payable on a superannuation death benefit payment?
Superannuation lump sum death benefits are tax free if paid to a “death benefits dependant” for tax purposes. A ““death benefits dependant” is defined in section 302-195 of the Income Tax Act 1997 as:
- The deceased person’s spouse or de facto spouse.
- The deceased person’s ex spouse or ex-de facto spouse
- The deceased person’s child, if are aged under 18 years!
- Any other person who the deceased person had an interdependency relationship with just before he or she died.
- Any other person who was dependent on the deceased person just before he or she died.
An interdependency relationship exists if two or more people:
- Have a close personal relationship
- Live together
- Provide each other with financial support or domestic support and personal care. For example two brothers who live together, one of whom is blind and care for by his able bodied brother.
Note that the definition of a “death benefits dependent” under taxation law (i.e. who can receive a death benefit tax free) is slightly different to the defining of a “dependent” under the superannuation law (i.e. who can receive a death benefit).
What are the taxation consequences if superannuation death benefits are paid to the estate?
When superannuation death benefits are paid directly by the trustee of a super fund to a dependent who is not a “death benefits dependent” (A common example is a child of the deceased who is over 18 years of age, not a dependant of the deceased at the time of death) then the trustee of the fund will be responsible for calculating and deducting from the payment any superannuation death benefits tax. When superannuation death benefits are paid to the legal personal representative (that is the executor if there is a will or administrator if there is no will), the trustee of the fund does not deduct any tax but provides the legal personal representative with a statement setting out the taxable components of the payment.
It is the responsibility of the legal personal representative to pay any superannuation death benefits tax, from the estate, before those funds are distributed. If superannuation death benefits are paid to the legal personal representative, and then to a “death benefits dependant” as set out in section 302-195 of the Income Tax Act 1997, no tax will be payable. If however, any part of the superannuation death benefit is payable under the will or on intestacy to a beneficiary who does not fall within the definition of “death benefits dependant” then the legal personal representative will be responsible for declaring and paying tax on the taxable component of the death benefit payment.
If tax is payable what amount will be payable?
The amount of tax payable on superannuation death benefits passing to a recipient who is not a “death benefits dependent” for tax purposes will be calculated at different rates on the taxable components of the death benefit payment, depending whether they were taxed or untaxed inside the fund.
Are superannuation death benefits an estate asset?
Superannuation death benefits do not automatically form part of the estate of a deceased person. In many cases, the trustee of the superannuation fund will pay the death benefits directly to the deceased’s spouse, child or dependent. In that case the death benefit payment will not form part of the estate.
However, in some instances the superannuation trustee will pay the death benefit payments to the deceased’s legal personal representative (that’s an executor under a will or an administrator if there is no will) and in that case the superannuation will form part of the deceased’s estate and pass according to the terms of the deceased’s will, or if there is no will in intestacy.
Section 10 of the Superannuation Industry (Supervision) Act (“SIS Act”) defines a dependant to include:
- The spouse of the member. Spouse includes a de facto partner and a same sex partner.
- The child of the member. A child includes an adopted child, a stepchild, an ex-nuptial child and a child of the principal person’s spouse (for that period that the child remains the principal person’s spouse) and any other person deemed to be a child of the principal person under the Family Law Act 1975.
- A person with whom the member was in an interdependent relationship with at the time of their death. Interdependent relationship is defined by the SIS Act as a close personal relationship between two people who live together, where once or both provides financial, domestic and personal support of the other.
What happens if there is no person who fits within the definition for dependent for superannuation purposes?
If there is no person who is a dependent under the SIS Act, the superannuation death benefit may be paid to the member’s Legal Personal Representative (that is the executor if there is a will or the administrator of the estate if there is no will). If this is done the superannuation death benefits will form part of the estate and will be distributed with the member’s will or if there is no will in accordance with the intestacy provisions.
What happens if there is no Legal Personal Representative?
Clause 6.22 of the SIS Regulations provide that if the trustee has not, after making reasonable enquiries, found either a legal personal representative or a dependent of the member then the trustee may pay the benefit to a third party.
This article provides general information only and should not be taken as legal advice. Everyone’s circumstances are unique, and the right approach depends on your situation. If you are facing questions about superannuation death benefits, the team at Madsen Law can provide tailored guidance and support. Contact us today to discuss your options and ensure your loved ones’ interests are protected.
