Avoid costly mistakes: How missteps with superannuation forms can impact your estate and taxes

It’s a scary thought for Starts at 60 fans, but tick the wrong box on a simple form and your loved ones could end up paying tax or losing valuable government benefits.

Few of us understand what happens to our superannuation funds when we die and in many cases, it is the largest liquid asset available.

Even modest super fund balances can be increased dramatically when life insurance proceeds are added to the fund after death. In an instant, a few thousand could become several hundred thousand dollars.

It may come as a surprise but a taxed superannuation fund does not normally form part of your estate.

That means the instructions in your Will don’t usually apply to your super fund.

Superannuation funds are held in a type of trust. The trust’s primary purpose is to provide for your retirement but in the event you don’t make it to retirement, the money is then available to your dependents.

If you leave no instructions to the trustees of your super fund, the trustees are legally required to distribute the proceeds to your dependents following strict superannuation rules.

Sometimes the rules might not reflect your wishes and in many cases, the wishes of your loved ones.

Many superannuation fund complaints are over how a super fund distributes the death benefits to dependents

The simplest way to avoid this problem is to give the fund trustees explicit instructions about who gets what. The most secure way of ensuring your wishes are followed is to complete a “non-lapsing, binding death nomination”.

You can get the required form from your fund with a phone call or complete or download the form online.

What’s really important to understand, is that a superannuation fund can never make a payment to someone who is not a dependent.

People sometimes named on a nomination form include friends or charities but instructions to pay non-dependents must be ignored by the fund’s trustees.

You can however, direct that the fund pays the entire proceeds to your estate, in which case the instructions in your Will would take over. That way, the super can be distributed to whoever you nominate, including your friends, charities or anyone else.

A word of caution however, it potentially makes an estate asset contestable by someone who thinks they have been short-changed.

The key difference between paying the money to your estate, or directly to your dependents, is how the proceeds are taxed, and this is where things become even more confusing.

Learn more about securing your superannuation and estate before major surgery here.

Stay tuned for our upcoming article on the different types of dependents and how they are taxed. It could save your loved ones a fortune.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.