Superannuation and Estates

Contributed by Emma Bragg, Tetlow Legal and current to 4 February 2018. Based on the contribution of Charles Rowland.

Does superannuation form part of your estate?

Generally, superannuation does not form part of your estate unless the trustee of the superannuation fund pays your member death benefits directly to your estate.

Payment of Superannuation Death Benefits

In determining who payments are made to, the trustee of the superannuation fund must consider the governing rules of the fund, as well as ensure that any payments are permitted by both the trust deed of the superannuation fund and Australian superannuation laws. Unless they are bound to pay the superannuation death benefits in a particular manner on your death (see, for example, Binding Death Benefit Nominations), the trustee has the discretion to pay the superannuation death benefits to any one or more of your superannuation dependants and/or your estate (via the legal personal representative) in the proportions it sees fit.

Who are 'Superannuation Dependants'?

Australian superannuation laws determine who can receive a benefit following the death of the superannuant. They are often referred to as 'superannuation dependants'.

The superannuation dependants of the deceased are:
  • a spouse (which includes a de facto partner);
  • a child (regardless of age);
  • a person who was financially dependent on the deceased at the time of their death; or
  • a person who was in an interdependent relationship with the deceased at the time of their death (for the meaning of 'interdependent relationship' see definition in Glossary of Legal Terms Used
Alternatively, payments may be made to the deceased member's estate (via their legal personal representative).

If you wish for someone to benefit from your superannuation following your death, however they do not meet one of the definitions of a superannuation dependant above, then, if possible, you will need to direct your superannuation on your death to your estate and then make the appropriate provisions in your will. This may have taxation consequences for your estate and/or your beneficiaries (see Binding Death Benefit Nominations).

Binding Death Benefit Nominations

If permitted by the trust deed of the superannuation fund, it is possible for you to provide specific instructions as to where the proceeds of your superannuation account should be paid on your death. However, in order for it to be binding on the trustee of the superannuation fund, it must be in the form of a valid Binding Death Benefit Nomination ('BDBN') as set out in reg 6.17A Superannuation Industry (Supervision) Regulations 1994 (Cth).

A valid nomination must have the following characteristics:
  • nominations may only be in favour of superannuation dependants or your estate (via your legal personal representative);
  • you must set out the proportion or proportions of the benefit payable to each of your superannuation dependants;
  • nominations must be made to the trustee of the superannuation fund in writing;
  • they must be signed and dated by the member in the presence of two witnesses who are both over the age of 18 years and who are not nominated as beneficiaries;
  • they must contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence; and
  • the notice must be sent to the trustee of the superannuation fund and is not valid until it is received and approved by the trustee.
Most industry and retail superannuation funds will have a standard form of nomination which you can retrieve from their website or by contacting them. If an approved form is available then you should use that form.

It is important to note that BDBNs will not be available for all superannuation funds and specifically does not apply to the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS).

It is also important to note that most BDBNs lapse after three years from the date they are signed and must be renewed on their expiry in order to bind the trustee.

Making a Claim on Superannuation Following Death

If a person wishes to have some or all of the member's superannuation death benefits paid to them following the member's death, then it will be necessary to make a formal claim to the trustee (subject to any valid BDBN in place or other restrictions).

It is advisable that when completing claim forms for the superannuation, that your claim contains all the relevant information and is framed clearly from the outset.

If you are making a claim in your personal capacity, but are also the executor of the deceased's will or have been appointed as the administrator of the deceased's intestate estate, then you may have a conflict of interest. In recent years there have been a number of cases on this topic and it is advisable to consult a suitably qualified solicitor who practices regularly in this area of the law, as soon as possible following the death of the member, to discuss how these recent cases may impact you.

Taxation of Superannuation Death Benefits

How superannuation is taxed following the death of the superannuant will depend on a number of factors, including:
  • the components i.e. taxable (taxed and untaxed elements) and the tax-free component of the superannuation balance;
  • whether the benefit is being paid as a lump sum or a superannuation income stream; and
  • to whom the superannuation death benefits are paid.
If you were a tax dependant of the deceased, then the death benefit can be paid as either a lump sum or an income stream. If you were not a tax dependant, then the death benefit must be paid as a lump sum.

For taxation purposes, there are tax concessions and options available to tax dependants (this is NOT the same as superannuation dependants) of the deceased which are not available to non-dependants.

In relation to a lump sum payment, a tax dependant will usually receive the payment tax-free whereas a non-dependant will pay tax on the taxed and untaxed components of the payment plus the Medicare levy. A higher rate of tax applies to the untaxed component than that of the taxed component.

The rate of tax which applies in relation to the taxed element is the lower of the ultimate recipient's marginal tax rate and 17% (including Medicare levy) and, in relation to the untaxed element, it is the lower of the recipient's marginal tax rate and 32% (including Medicare levy).

Different rules apply for tax dependants who receive the benefit in the form of an income stream.

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