You may not be aware that how and in what proportions your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.
If you want your super to end up in the right hands—we look at how it works, who’s eligible, how to nominate your beneficiaries and the tax implications to be aware of.
Why won’t my will cover my super?
Your super is not typically covered by your will because your will only covers assets you own—things like your house, car, investments, savings and personal items.
Your super on the other hand is held for you in a trust by the trustee of your super fund and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.
Who can I leave my super money to?
In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.
Your super beneficiaries may include1:
- Your spouse or partner
- Your children
- Anybody financially dependent on you when you die
- Your estate or personal legal representative.
One reason you might nominate your estate or personal legal representative is you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries, as well as other people in your life.
It’s important however that you ensure the information stated in your will is up to date so your personal legal representative pays out your super money as per your instructions.
How do I nominate my beneficiaries?
When it comes to specifying your beneficiaries, most super funds will give you several options.
These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.
If you make a binding nomination that satisfies all legal requirements, the trustee of the super fund must pay your super to the beneficiaries you have nominated and in the proportions specified.
Also note, there are lapsing and non-lapsing binding nominations. Lapsing nominations typically expire every three years unless you renew them. Non-lapsing nominations may never expire.
If your super’s with AMP, we’ll let you know when a lapsing binding nomination is about to expire, but you must make sure your contact details are up to date.
If you make a non-binding nomination, the trustee will have the final say over which beneficiaries receive your super and in what proportions, but your nominations will be considered.
Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which beneficiaries the money should go to.
Will the money be taxed?
Different tax treatments can apply depending on whether your super is paid as a lump sum, income stream or mixture of both, and if your beneficiary or beneficiaries are classified as ‘tax dependants’.
A tax dependant includes2:
- current and former spouses and defactos
- any children of the deceased who are under the age of 18
- any other financial dependants.
Paying super death benefits as a lump sum
Lump sum super benefits, paid upon your death to tax dependants directly, or via your personal legal representative, are not taxed, whereas super benefits paid to non-tax dependants may be.3
For non-tax dependants, tax will only be payable on any taxable component of the lump sum super benefit, which may include both a taxed and/or untaxed element.
The taxed element is subject to a maximum tax rate of 15% plus the Medicare levy. The untaxed element is subject to a maximum tax rate of 30% plus the Medicare levy.4
Note, an untaxed element will typically only arise where the death benefit includes proceeds from a life insurance policy held by the fund, or where the death benefit is being paid from an untaxed super fund, for example certain government sector super funds.
Paying super death benefits as an income stream
Where the death benefit is paid in the form of an income stream, the tax treatment depends on the age of the deceased and or the age of the beneficiary.
If super is paid from a taxed super fund—and you or the recipient are aged 60 or over at the time of your death—it’ll be tax free.5
If you’re both under age 60 at the time of your death, the taxable portion of income stream payments will be counted as assessable income for your beneficiary, but they’ll be entitled to a tax offset equal to 15% of this amount. When they turn 60, the income stream will become tax free.6
If the death benefit pension however is paid from an untaxed fund, the taxable portion of pension payments received by a beneficiary under age 60 (where you’re also under age 60 at the time of your death) will be taxed at the beneficiary’s maximum tax rate, with no tax offset.
If you or your beneficiary are over age 60 at the time of death, the taxable portion of pension payments will be eligible for a 10% tax offset.
Other things worth noting
Children over the age of 25 (other than those with a permanent disability) cannot receive super death benefits as an income stream. And, if they do receive a death benefit pension from an earlier age, they’ll typically need to cash it as a lump sum by the time they turn 25.7
Meanwhile, changes to the super rules, which come into effect on 1 July 2017, may further restrict your ability to pay a death benefit pension to your beneficiaries as a result of the introduction of a new pension transfer cap.
What to do now
To ensure you have binding nomination arrangements in place for your super money:
- check your super fund allows binding nominations
- check those you’re nominating are eligible
- if you plan to nominate your personal legal representative, make sure your will is up to date
- complete and sign a binding nomination form—in the presence of two witnesses who are not beneficiaries—and send the form to your fund
- if your nomination is lapsing, make sure you review and renew it before it expires.
When you’re considering who you’re going to leave your super to, it’s important to think about the people who matter most and how tax implications may affect the amount they could receive.
If you need assistance, speak to your financial adviser. If you don’t have one, contact us on 131 267 or use our find an adviser tool.
Find your lost super
When you change jobs or move, your super fund can lose contact with you. Wherever your super happens to be, we can find it for you.
If you’d like your super money to make a difference to the world as well as to your future, ethical investing may be for you.