Who Gets My Super
Who gets my super when I die? Did you ever ask yourself that question?
Who Gets My Super
Our lawmakers want your super to be gone when you go. That’s why they gave you – in their eternal wisdom – minimum pension payments to contend with. That is why it gets harder and then impossible to make personal contributions past 64. And why there are caps on contributions full stop.
But let’s assume that despite all their efforts, at the end you still have some super left. Who gets it?
The simple answer is that you can leave your super to whoever you want. But to work out the ‘How’ there are 8 steps to go through.
Who – SIS Act
1 – Who do you want your super to go to?
2 – Are they SIS dependants?
How – SIS Act
3 – As a death benefit or through your estate?
4 – As a lump sum or pension?
Tax – ITAA 97
5 – Any tax dependants?
6 – Amount of tax-free and taxable components?
7 – Your and beneficiary’s age?
Document – SIS Act and State Law
8 – Death benefit nomination or valid will?
These are the 8 steps you need to walk through. You don’t have to work this out alone. This is our bread and butter. But it still helps when you understand the options you have. To achieve that, let’s look at each step again.
Step # 1 – Who Do You Want Your Super To Go To?
Start with what you want. Who do you want your super to go to when you die? You can give your super to whoever you like. It is your super.
Step # 2 – Are They SIS Dependants?
It might sound strange. It might be a term you never heard before – SIS dependants. But it will be an important one. You will see shortly why.
There are four types of SIS dependants.
1 – Your spouse (married or de-facto but not a former spouse)
2 – All your children regardless of age
3 – Anybody living in an interdependency relationship with you
4 – Anybody financially dependant on you who is not your child
To live in an interdependency relationship you must live together and have a close personal relationship. In addition, one or both of you must provide the other with financial support as well as domestic support and personal care. Think of your elderly parents living with you. You find all this in s10A SIS Act and s302-200 ITAA97
Financially dependant means just that – somebody depends on you financially. Think of your orphaned nephew who you put through college.
Step # 3 – As a Death Benefit or Through Your Estate?
Upon your death, your super can leave your fund in two ways.
Your super can go directly from your fund to your SIS dependants. Or your super can go into your estate and then your legal personal representative (LPR) will distribute it – in accordance with your will if you left one.
So anybody can receive your super through your estate but only your SIS dependants can receive it directly from your fund.
Step # 4 – As a Lump Sum or Pension?
Your super is usually paid out as a lump sum – either in cash or in specie. Lump sum is the default mode. It means your super leaves the low-tax super environment straight away and in one hit – the legislator’s preferred option.
But there is another way and that is a death benefit pension. With a death benefit pension your super stays within super and is only slowly paid out via pension payments.
The legislator doesn’t like this one for obvious reasons. And so they limited the circle of possible recipients to your spouse, your children under 18 as well as anybody living in an interdependency relationship with you or financially dependant on you who is not your child.
Your adult children, however, are out, meaning they need to take their super as a lump sum. But there two exceptions. A child between 18 and 24 and financially dependant on you can get a death benefit pension but needs to take the rest as a lump sum on their 25th birthday. And children with a disability can receive a death benefit pension regardless of age.
Step # 5 – Any tax dependants?
SIS law has a say in who can get your super and how. Tax law determines how much tax they will pay when they do. And for this you need to determine whether the recipient of your super is a tax dependant.
Your tax dependants receive all your super tax-free. Non-tax dependants receive your tax-free component tax-free, but pay tax on your taxable components (15% on any taxed element and 30% on any untaxed element).
So who are your tax dependants? There are 4 types.
1 – Your spouse (married, de-factor as well as former spouses)
2 – Your children under 18
3 – Anybody in an interdependency relationship with you including children
4 – Anybody financially dependant on you including children
Sounds like the definition of a SIS dependant? It does with two exceptions. Your financially independent adult children are not your tax dependants, even though they are your SIS dependants. And a former spouse is your tax dependant but not your SIS dependant.
Please note that per ATO ID 2014/22 an adult child can be your tax dependant if they qualify as living with you in an interdependency relationship or are financially dependant on you.
Step # 6 – Amount of tax-free and taxable components?
Your super consists of two components – tax-free and taxable. The taxable component consists of two elements – taxed and untaxed. Every recipient receives these components and elements in the same proportion as they exist in the relevant super account. So you can’t pick and choose who gets what component or element.
The good news is that nobody pays any tax on the tax-free component and tax dependants pay zero tax on any taxable component either. So tax dependants walk away scot-free.
The bad news is that non-tax dependants pay 15% tax on any taxed element and 30% on any untaxed element – both plus Medicare – if they receive your super as a lump sum.
Untaxed elements are rare and usually only appear if there has been a pay-out from a life insurance policy held by the fund or the fund itself is untaxed, which only applies to certain government sector funds.
Step # 7 – Your and beneficiary’s age?
Age only matters for death benefit pensions but not for lump sums. And it only matters with respect to taxable components. Tax-free components are tax-free regardless of age.
If one of you is 60 or over at the time of your death, the taxable component of any pension payments is tax-free. Given that your beneficiary will be a tax dependant, this is in line with the taxation of lump sum payments.
However, if one of you is below 60 at the time of your death, then your beneficiary includes any taxable component in their assessable income with a 15% tax offset. But this stops the moment the beneficiary turns 60. From then on the beneficiary will receive the taxable component tax-free.
There is just one exception to all this – untaxed super funds. But these are rare and a dying specie within the government sector.
Step # 8 – Death Benefit Nomination or Valid Will?
So now it is time to put all this in place. You decide how you do this. You can
1 – Make a binding death benefit nomination that pays your super to your SIS-dependants and/or estate – renew every 3 years or make it non-lapsing;
2 – Make a non-binding death benefit nomination to your SIS dependants and/or estate and that the trustee might follow or not.
3 – Make no death benefit nomination and leave it up to the trustee to decide how much should go to your SIS dependants and/or estate;
4 – For any super within your estate, make a will that stipulates who gets how much of your super; or
5 – Leave it up to your LPR to decide what happens to your super that ended up within your estate.
Looking at all this, is this really what you want?
For example, are you sure you really want your super to go to your financially independant adult children, even when they have to pay 15% or 30% tax plus Medicare on any taxable component?
Or are you sure you really want to leave it up to others by not having a binding nomination and will?
If you aren’t, please give us a call. We will be able to help. It would be a pity to get this wrong and have your super go places or trigger tax that you didn’t want.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 10 February 2020