What happens to my super if I die?
Superannuation death benefits explained.
When you die, your superannuation account balance – together with any death insurance benefit that is part of your super – will be paid to your dependents. However, as a recent case in the media has demonstrated, this does not always occur.
A recent case in the media has revealed how a Magistrate who had a relationship with his court clerk, successfully claimed her $180,000.00 superannuation death benefit, despite it being bequeathed to her struggling mother in her Will. The reason the Magistrate was successful was because he successfully argued that he was the deceased’s “de-facto” partner and therefore, as they were living together, he was considered to be her “dependant”.
Below, we will explain what happens to your hard-earned superannuation when you pass away, as well as who makes the necessary decision about the distribution of any death benefit and how this decision is made.
What is a superannuation death benefit?
A superannuation death benefit is a payment made to a dependent beneficiary, or to the Trustee of a deceased estate, after a person dies. This can include any funds remaining in the deceased’s superannuation account balance, together with a death insurance payment, being paid out to beneficiaries.
If you have not nominated a beneficiary, the Trustee of your superannuation fund will pay your death benefit to your estate, or it will use its discretion to determine which eligible beneficiaries the money should go to.
If there is more than one beneficiary, the Trustee of the superannuation fund will determine the proportion of the distribution to be made among the beneficiaries. The basis of this decision depends on the level of dependence that each beneficiary had upon the deceased – i.e. if they were financially dependent on the deceased and certain relationship factors.
Who is classified as a dependent?
Under superannuation law, a “dependent” in a death benefit claim includes
- The deceased’s spouse or de facto partner
- A child of the deceased (any age)
- A person who has an interdependency relationship with the deceased
To prove an independency relationship, it must be established that a close personal relationship exists between two people who live together, where one or both provides for the financial, domestic and personal support of the other.
When determining who is a dependent and the level of dependency on the deceased, the Trustee of the superannuation fund will take into consideration all evidence that reflects the closeness of the relationship between the beneficiary and the deceased. This may include whether the deceased and the beneficiary were living together at the time of death, and if there were shared finances or expenses such as bills, mortgages and costs of living.
How do I ensure that my superannuation death benefit goes to a particular person?
Most superannuation funds will allow you to make a binding nomination. This means that you can specifically name a beneficiary – or beneficiaries – to receive your superannuation death benefit if you pass away. It is important to note however, that binding nominations will lapse after three years and need to be renewed.
If you make a binding death benefit nomination that satisfies all legal requirements, the Trustee of the superannuation fund will pay your super to the beneficiaries you have explicitly nominated, and in the proportions you have specified.
What if I have a Will?
In many cases, a person may choose to name someone in their Will as the beneficiary to their superannuation. Despite this however, the Trustee of a superannuation fund may not necessarily distribute the death benefit to this person.
When you die, your superannuation does not automatically form part of your Estate. When there is a valid binding nomination in force, the Trustee will distribute the death benefit in accordance to that nomination, even if it contradicts what is stated in the Will.
In cases where there have been disputes in relation to a Will, or someone has challenged the distribution to a beneficiary, courts have given more weight to binding nominations over what is written in a Will. This is because binding nominations are to be renewed every three years, which can be more indicative of the deceased’s intentions.
Will I be taxed on a lump sum death benefit?
Different tax treatment can apply to superannuation death benefits, depending on whether it is paid as a lump sum, income stream, or a mixture of both, and if your beneficiary or beneficiaries are classified as ‘tax dependants’.
If a payment of a lump sum death benefit is made to a dependent, the whole amount will be tax-free. If a payment of a lump sum death benefit is made to a non-dependent, then tax will be payable on a tax-free and taxable component for each benefit paid.
It is always prudent to obtain financial advice from either your Financial Advisor or Accountant about any tax implications superannuation death benefits may have.
How do I dispute a superannuation death benefit?
If you believe that you should have been entitled to the superannuation death benefit of someone who has recently died, you must act swiftly. Whilst challenges to a distribution can certainly be made, it must be brought to the Trustee’s attention within 28 days of the decision being made.
Get legal advice
Losing a loved one is an emotional and difficult time.
Whilst in most cases, your superannuation account balance and any accompanying insurance are paid to your nominated beneficiary, disputes can often arise, particularly where there is a conflict surrounding who the dependents are, or an argument about the allocated percentage.
To have your questions answered, get in touch with one of our superannuation experts today.