Make your Decisions Binding
A death benefit from a super fund is a payment a beneficiary receives because of the death of another person who was a member of that fund. A death benefit is typically paid from a super fund, retirement savings account provider, an approved deposit fund, or a super annuity provider. Generally this death benefit will have been bequeathed to the designated person; since understandably, most people try to ensure their death benefits go to the correct person of their choice. Not to mention their wish for their estate not to be liable for excess tax and reduce the amount bequeathed to loved ones.
The death benefit may be made up of a taxable component, and a tax-free component and the amount taxed depends on whether:
• the beneficiary is a dependant of the deceased, or
• the amount is paid as a lump sum or super income stream, or
• if it was paid from an untaxed fund.
Death benefits may also be paid to beneficiaries from the deceased’s employer; this is known as death benefit termination payments. These are employment termination payments and are made up of entitlements, such as annual leave, that were still owed to the deceased. This payment is taxed depending on:
• whether or not the beneficiary is a dependant of the deceased, and
• the total amount of payments received in consequence of the same termination of employment.
People are deemed to be a dependant of the deceased if they:
• were their spouse or de facto spouse
• were a former spouse or former de facto spouse
• were a child of the deceased and under 18 years of age
• relied on the deceased for financial maintenance, or
• lived with the deceased in a close personal relationship where one or both provided for the financial and domestic support and personal care of the other (this is known as an interdependency relationship).
If the beneficiary is a dependant, the benefit will be paid to them in one of the following ways:
• One off lump sum payment – A lump sum from the fund paid to a dependant will usually be tax free.
• Ongoing payments such as an income stream (also known as a pension or annuity) – The tax paid on this depends on the beneficiary’s age when he or she receives the benefit and the deceased person’s age at the time of their death.
• If the beneficiary is 60 years old when receiving the benefit or the deceased was 60 years old or older when they died; any payments received will be tax-free income.
Most people mistakenly believe that by nominating an intended recipient to their super fund that this is a binding nomination or that their benefit will be paid out according to their Will. This is not the case. The person or persons that you nominate to your super fund is considered a preferred nomination and as such is not binding. This essentially means that it can be easier for other family members to dispute the nominated recipient receiving the payment as the deceased had intended. A separate binding nomination needs to be made, to ensure the money goes to who you want it to go to.
Whilst most do not like to think and plan for our passing on, it is extremely important to organise what you want to happen with your assets when you die. Failure to express your intentions and have them correctly documented so that they are binding could cause a lot of emotional and financial stress to those loved ones that you leave behind. For more advice on death benefit or to discuss Wills and other estate planning queries contact the experienced team of accountants, lawyers and financial planners here at The Quinn Group. Submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.