Death benefit nominations
While only dependents can receive your super as a reversionary pension, subject to the rules of your Fund, you may be able to nominate a non-dependent beneficiary to receive your super as a lump sum on your death, but it is recommended that you do so by nominating a legal professional to receive the benefit. The benefit will then be distributed in accordance with the deceased’s will.
A death benefit can also be used, in some circumstances, to establish a new pension for a beneficiary.
If you answer YES to the question ”Established from Death Benefit?” you are specifying that rather than commence a new pension, you want your Trustees to simply continue paying your existing pension to your nominated reversionary beneficiary.
Nominations may include ‘’if, then’’ clauses, providing for circumstances where a nominated beneficiary passes away prior to inheriting.
For example, a member may elect to allocate 100% of the benefit to their spouse, but if their spouse pre-deceases them or if they divorce their spouse, then the benefit should be distributed to their children on an equal proportionate basis.
Under a binding nomination, the Trustees must pay the death benefit as nominated.
If a binding nomination is allowed, you may nominate one or more dependants or a legal representative to receive your super. Qualified dependants can receive the benefit as an income stream (reversionary pension) or as a lump sum.
Under a non-binding death benefit nomination, the Trustees have discretion to observe the wishes of the deceased member or to pay the entitlement directly to the member’s Estate for distribution in accordance with the Will.
A non-binding nomination may be more appropriate if a member:
- Has no dependants or family concerns
- Has no minor children under the age of 18 (or under 25 and still studying full time), as in these circumstances the benefit may be better managed for taxation purposes by giving professionals discretion to distribute in the most tax effective manner
- Anticipates possible changed circumstances such as a marriage breakdown or a beneficiary falling into financial difficulties
- Fears a beneficiary may misuse money to cover personal debt or fund an undesirable habit
It may be wiser to allow a professional discretion to distribute funds in the manner deemed most beneficial to all eligible beneficiaries.
If no nomination is made, the Trustees have discretion to distribute the funds to the Estate or to any Dependent of the deceased of their choice.
Expiry of Nomination
Generally, nominations expire three years after the nomination is made, however legislative changes benefiting Self-managed superannuation funds have removed this limitation and nominations by SMSF members are now binding unless revoked.
Taxation of Death Benefits
Taxation of superannuation death benefits varies according to whether or not the beneficiary is a dependent and the respective ages of the deceased (at time of death) and the beneficiary. For dependent beneficiaries, tax may also vary according to whether the benefit is claimed as a lump sum or as an income stream.