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What happens to your super when you die?

Oct 17, 2021

Death nominations

Most people have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations:

Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund. When you die, it does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made. 

Binding death benefit nomination - Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.

 

Non-lapsing binding death benefit nomination - Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate.

 

Non-binding death nomination - A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate.

 

Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.


If no death benefit nomination is in place - If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will.


Is your death benefit valid?

There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology.


Who can receive your superannuation?

Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you.

 

A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.


Do beneficiaries pay tax on your superannuation?

Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty.

 

If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased.

 

If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay depending on whether the superannuation death benefit is made up of tax free or taxable components.

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Downsizer Contributions To Super

By Lisa Cahill • 07 Feb, 2023
From 1 January 2023, those 55 and over can make a ‘downsizer’ contribution to superannuation. Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs.  What is a 'downsizer' contribution? If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap). For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria). Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you. Let’s look at the eligibility criteria: You are 55 years or older (from 1 January 2023) at the time of making the contribution. The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. The home is in Australia and is not a caravan, houseboat, or other mobile home. The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain. You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution. The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home. Do I have to buy another smaller home The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one.

Federal Budget Update - 2023FY

By Lisa Cahill • 25 Oct, 2022
As expected, this year’s second Federal Budget had a strong focus on families, education, health and aged care, energy and affordable housing. From a superannuation perspective it has been a relatively quiet Budget but there were some welcome announcements that will benefit SMSF members funding their retirement. Please remember the following budget announcement are not yet law. Reducing the eligibility age for downsizer contributions The eligibility age to make downsizer contributions into superannuation is set to be reduced from 60 to 55 years of age. All other eligibility criteria will remain unchanged This change will provide a boost to the number of individuals eligible to make a one-off, post-tax contribution to their superannuation of up to $300,000, using the sale proceeds of their family home – regardless of their superannuation balance. Relaxing residency requirements for SMSFs Previously announced in the 2021/2022 Budget, the residency requirements applicable to SMSFs and small APRA funds were set to be relaxed through:  The extension of the central management and control test “safe harbour” from two to five years, and The removal of the “active member” test – which would allow members who are temporarily absent from Australia to continue contributing to their SMSF. Both of these proposals had been slated to commence from 1 July 2022. The Government has confirmed that these changes, broadly aimed at allowing greater flexibility for SMSF members who are temporarily overseas, are still set to go ahead. However the start date for both measures has been deferred. Incentivising Pensioners to Downsize The current Centrelink asset test exemption for proceeds from the sale of a family home, intended for the purchase of a new home, will be extended from 12 months to 24 months. Additionally, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these exempted proceeds over the 24-month period. These changes will allow pensioners more time to purchase, build or renovate a new home before their pension is affected. Increased Commonwealth Seniors Health Card income threshold The Government has confirmed its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples. This change will increase the number of individuals eligible to benefit from a Commonwealth Seniors Health Card. Freezing of deeming rates The Government has also confirmed that it will freeze the social security deeming rates at their current levels until 30 June 2024. This change will support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.
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Superannuation Changes - 1 July 2022

By Lisa Cahill • 01 Jun, 2022
Several key superannuation changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members to grow their retirement savings.
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