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Death Benefits From Super


Through compulsory superannuation and education, more Australians now have superannuation savings. The purpose of superannuation benefits is to provide retirement savings for the member, or benefits to dependants in the event of the member’s death. Superannuation is one asset which may not form part of the person’s estate as it can be paid directly to beneficiaries rather than the deceased’s estate. This is an opportunity for individuals to determine who will receive the amount of their superannuation benefit in the event of their death. Depending on the rules of the funds, the person may also be able to specify how the benefit will be paid (i.e., lump sum or income stream). It is necessary to understand who can be nominated to receive a person’s superannuation and what options are available within the superannuation fund. The tax implications of receiving the superannuation death benefit also need consideration.



Part of the strategy for estate planning is protection of the wealth which has been created and one method of providing this protection is through insurance. Life insurance can form part or a person’s estate; or can be directed specifically to a beneficiary; or can be paid to the policy owner. Term insurance is the simplest example of estate planning and its purpose is to provide a lump sum benefit on the death of the life insurer. It is possible to nominate a beneficiary of the policy. Term insurance can be held within superannuation so that on the death of the member, the proceeds of the policy are paid to the superannuation fund, which has the effect of increasing the death benefit payable. The superannuation legislation outlines who can receive a death benefit from superannuation and the trustee of a superannuation fund must consider dependants of the members before other beneficiaries.



There are different types of nominations of beneficiary within superannuation and each fund can choose the options they wish to provide. If no nomination is made, the trustee will exercise discretion as to whom to pay, or the trust deed may specify the payment must be made directly to the deceased’s estate.



The types of nominations are:


1. Nominated beneficiary


Merely an indication to the trustee of your wishes. This type of nomination is not binding on the trustee and the trustee will choose to whom to pay the benefit.


2. Binding death benefit nomination and reversionary nomination


These can be binding on the trustee provided the person nominated falls within the definition of dependant under the superannuation legislation. Individual product providers may have a narrower definition of a dependant than that provided in the legislation and this may be relevant where the benefit will be paid as an income stream (i.e., only a spouse can be a reversionary beneficiary). In many public offer superannuation funds a binding death benefit nomination is only valid for up to three years unless reconfirmed. In some funds, binding nominations are non-lapsing. For lapsing nominations, if the nomination is not reconfirmed within three years, the nomination lapses and the payment of the death benefit after this date will be made according to the trust deed. For non-lapsing nominations, if a person’s circumstances change and they are incapable of changing the nomination, the nomination remains unchanged.


3. Beneficiary specified in trust deed.



Important note: The Superannuation Industry (Supervision Act 1993) has a broad definition of a dependant, which includes any spouse (either legal or de facto), child of the member, a person who is financially dependent upon the member, or another person with whom the member has an interdependency relationship, which means that the parties have a close personal relationship, live together, and provide each other with financial support and domestic support and personal care. There is no requirement for the people to be a family. A member can also nominate their benefit to be paid to their estate under a binding death benefit nomination. The ability to nominate the estate depends on the trust deed of the superannuation fund. In some cases, the nomination will be specified in the trust deed. For example, some superannuation funds may specify that death benefits are only paid as a lump sum to the estate.

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