Know what happens to your superannuation when you die

If you’ve spent the better part of your life working hard and siphoning money into your superannuation fund you probably have a neat little nest egg waiting for you. Should you still be working, you might be thinking about the amount of super you’ll need in retirement.

But what happens if the lights suddenly go out on your life and you’ve budgeted for more than what you end up with in your account. Have you ever wondered about what happens to your superannuation if you die?

It mightn’t be the most pleasant thing to be thinking about, but it is important to consider, especially if you think leaving any unused superannuation in your will is enough.

Your will will take care of it

Umm, perhaps not. In fact not many people realise that their superannuation is treated differently to their other assets when they die. Superannuation is not automatically considered as part of your estate — that is the total value of your bank accounts, your home, your car, etc. — but it could be one of the biggest assets you leave behind.

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According to businessDepot Legal, your super will only form part of your estate if you direct it there. Turns out there is a little bit more to estate planning than just having a will.

What that means is you need to complete a ‘binding death benefit nomination’ which directs the trustee of your super fund to pay your death benefit to those beneficiaries you have nominated and the amounts you have nominated for them. It might be worthwhile checking with you super fund to ensure this is an option, and while you’re at it you might like to get the required paperwork.

Everyone should have a binding nomination

While binding death benefit nominations sound like they will take care of everything, there are some situations where you might be better off allowing the superannuation fund trustee to have flexibility when deciding who gets your super. These include circumstances where you have had a relationship breakdown, such as a divorce, and you haven’t had the time to update the nomination prior to your death; or where the beneficiary hasn’t considered asset protection and they become exposed to creditors.

Your super is tax free when you die

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Again, not really. The requirement for tax to be paid and the amount is dependent on what strategies you have put in place, who is to inherit your super and the process it goes through to get to them.

It’s another reason why you might want to ensure your estate planning is up to date, because you wouldn’t want your super to incur any unnecessary tax.

If you have adult children, it is likely that the maximum amount of tax they will pay on a death benefit received from your super is about 17 per cent. It could be up to 31.5 per cent if you leave your super money to someone other than a spouse or dependent.

A couple of other taxes you should consider according to businessDepot Legal are Stamp Duty, capital gains tax within the fund, and potential taxes in relation to insurance payouts.

Your executor will take control of your self-managed super fund

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Nope! If you are in a self-managed super fund then you will know that the members of that fund also act as the fund’s trustees. If you die the fund will generally pay a death benefit to a dependent or other beneficiary of the deceased. In that regard you might have been required to make a binding death benefit nomination asking the self-managed super fund trustees to pay your death benefit to the nominated beneficiaries. However, if this is not the case the trustee may pay it to your estate for the executor to distribute as outlined in the instructions of your will.

It’s therefore worth taking a close look at how your estate planning is going. You want to be making the right planning decisions for you and for your loved ones.

When was the last time you reviewed your estate circumstances? Do you have concerns about your estate should you die?

Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.