Who gets your super?
Superannuation is not an estate asset; on death it does not automatically flow to the estate of the deceased.
The trustee of the super fund will generally pay a death benefit in accordance with the governing rules of the fund and relevant law.
This comes on the back of the “Current Affair” story last night (30/06/2020)
“NSW family taught hard lesson about inheritance after woman claims father's super and estate”
This family learned the hard way that people named to inherit superannuation when loved ones pass are not necessarily the ones that end up getting it.
A father had nominated his adult children as the beneficiaries of his superannuation fund.
The lady their father was living with claimed she and their father were in a de facto relationship and even planning to marry.
The assertion left the family dumbfounded. They claim the pair were "definitely not" in a relationship.
Despite their family naming his children as beneficiaries of his super, the lady was able to claim it after his death.
Cbus Superannuation, acknowledges his children were the nominees on his super, but nomination was ultimately only used by Cbus as a guide.
Unfortunately their father had implemented a “non-binding death benefit nomination”. This recommends to the trustee of the super fund as to who they would like to receive their superannuation benefits. However, CBUS in this situation has used the trustee discretion to distribute the benefits as they see fit.
Unfortunately many people do not understand the complex superannuation system. Most people would not understand that superannuation does not form part of your estate. Therefore, when you pass, your super is not covered by your will. It is a separate entity altogether.
If you want to be confident that your estate planning wishes will be respected, you will will need to implement a “binding death benefit nomination” that binds the trustee to your nomination.
Put simply, a binding death benefit nomination is a legally binding nomination that allows you to advise the trustee who is to receive your superannuation benefit in the event of your death. In order for a nomination to be binding, it must be 'valid'. One of the requirements of validity is that only 'dependants' can be nominated. Depending on your circumstances, however, you can nominate one dependant or a number of dependants. For the purposes of superannuation law, a dependant includes:
a spouse (including de facto, opposite and same-sex)
children of any age (including adopted or ex-nuptial)
any person(s) financially dependent on the member
any person(s) in an interdependency relationship with the member
a legal personal representative (LPR)
The second example we had recently was a 75 year old lady whom had two super funds.
$400,000 - Had a binding death nomination to her husband
$350,000 - Had a binding death nomination to her two sons
Unfortunately, she did not seek advice before implementing her estate planning strategy. With her husband receiving $400,000 tax free and her two sons sharing in $350,000.
However, as her two sons are adult children & are not financially dependant there was further tax to pay.
Superannuation states that any death benefit paid to a financial dependant will receive benefits tax free.
However, should the beneficiaries be non- dependant, tax is deducted from the taxable component of the benefit at a rate of 15% (plus medicare levy).
In this case the entire $350,000 was taxable, resulting in a tax liability of $59,500.
These two examples highlight the importance of seeking professional financial advice from your Newcastle Financial Planners, to ensure that your estate planning wishes are respected & the government doesn’t take large chunks of your hard earned money in “death benefit taxes”.
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