As a financial adviser, part of my job is to help my clients plan for their future, and that includes planning for what happens to their Superannuation when they pass away.

Let’s investigate this intriguing topic.

Cracking the Superannuation Code

First things first, your superannuation isn’t automatically included in your Will unless you have given specific instructions to your superannuation fund first. This sets it apart from other assets like your house or car, which usually get dealt with through your Will. Superannuation is a whole different ball game — it’s held in trust by the trustee of your super fund.

Choosing Your Beneficiaries Wisely

If you want your superannuation to go to certain people, you need to keep your superannuation fund up to date by nominating a valid beneficiary. Without a nomination, your superannuation fund may decide who receives your funds, regardless of your Will’s instructions.

Nominations

When someone dies, in most cases their superannuation fund pays their remaining superannuation to their nominated beneficiary, known as a ‘superannuation death benefit.’ If the benefit is paid to a dependant of the deceased, it can be paid as either a lump sum or income stream. If the benefit is paid to someone who is not a dependent, it must be paid as a lump sum.

You can nominate a beneficiary by making either a non-binding or binding nomination, depending on your fund’s rules. If you haven’t made a nomination, or it’s non-binding, the trustee of the fund may use their discretion or pay the benefit to your legal personal representative for distribution according to your Will.

Decoding Dependents

Now, figuring out who qualifies as a dependent involves navigating a maze of superannuation and taxation laws. According to super rules, dependents include spouses, kids of any age, or individuals in a financially interdependent relationship with the deceased. But, for tax purposes, a dependant includes the deceased’s spouse or de facto spouse, a former spouse or de facto spouse, a child of the deceased under 18 years old, in an interdependency relationship with the deceased, or any other person dependent on the deceased.

Real-life Scenario: The Marcus Case

Let’s take Marcus, a widower with adult children, Luke and Olivia. If Marcus passes away and his $800,000 super balance contains a mix of tax-free and taxable components, Luke and Olivia – though dependents under super rules — aren’t considered as such for tax purposes. So, when they get their share, they’ll be reaching for their wallets to settle the tax bill on the taxable amount. If Marcus’s superannuation benefit contains a $70,000 tax-free component and a $730,000 taxable component, Luke and Olivia, as non-tax dependents, will have to pay tax. Based on the current tax rates, they would pay a tax of $124,500 (17% of $730,000).

Ensuring Your Legacy Lives On

To make sure your super goes where you want it to, it’s crucial to understand these ins and outs and ensure everything is in order with your super fund. It’s all about ensuring your legacy lives on according to your wishes and providing peace of mind for you and your loved ones.

How We Can Be Your Super Specialist

Looking to navigate the super jungle and optimise your assets for a smooth transfer to your heirs? That’s where we come in. We’re here to guide you through the maze of tax-effective strategies, ensuring your superannuation legacy is passed down efficiently.

To discuss your situation with us, get in contact below or call 02 4969 6600.