Two frequently asked questions we receive from our clients with respect to superannuation are:
- How is my superannuation dealt with following my death?
- Who can receive my superannuation when I die?
Superannuation, Wills and deceased estates
It may come as a surprise to learn that your Will does not automatically determine who receives your superannuation benefits following your death.
Australia’s superannuation system is regulated by two key pieces of legislation — the Superannuation Industry (Supervision) Act 1993 (Cth) (Act), and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (Regulations). The Regulations set out the key provisions regarding compulsory ‘cashing’ of superannuation upon the death of a member of a superannuation fund — that is, the payment out of the fund of the deceased member’s superannuation benefits.
What is a superannuation death benefit?
A person’s superannuation member benefits consist of their member contributions, including any compulsory contributions paid to their fund by their employer, together with any voluntary contributions made by the fund member themselves, such as any salary sacrifice amounts.
A member’s benefits may also include insurance benefits, such as a life insurance policy owned within their superannuation fund.
Following the death of a superannuation member, their ‘superannuation death benefit’ may comprise their member contributions together with any insurance benefit paid into the fund by an insurer pursuant to an insurance policy.
When must payment of the superannuation death benefit take place?
The Regulations require that upon the death of a superannuation fund member, their superannuation interest cannot remain in their fund indefinitely — it must be paid out to a beneficiary as soon as practicable.
It is generally considered that ‘as soon as practicable’ is within six months from the date of death of a member. If the death benefit is to be paid to the deceased member’s estate, then six months from the granting of Probate of the deceased member’s Will. However, the circumstances of a deceased person’s death and the nature of their estate and personal affairs vary what is a considered “as soon as practicable”.
Who can receive a deceased person’s superannuation death benefit?
While an individual is free to make a Will leaving their estate assets to any person or entity they choose, the superannuation legislation restricts the categories of persons that can receive a superannuation death benefit following the death of a fund member.
The trustee of a superannuation fund can pay a deceased member’s death benefit to their ‘legal personal representative’, or to a ‘dependant or dependants’ of the deceased member.
Who is a ‘legal personal representative’?
The Act provides that a ‘legal personal representative’ of a person includes:
- the executor of the Will of the deceased person; and
- the administrator of the estate of a deceased person.
While not defined by the Act, an ‘administrator’ includes the following situations:
- where a deceased person fails to leave a valid Will prior to their death, then the administrator of their estate is the person to whom ‘Letters of Administration’ have been granted by a Court of an Australian state or territory; or
- where the deceased person leaves a valid Will, but the executors appointed by that Will are:
-
- unable to administer the estate (for example, they may have died before the deceased person, or may suffer from a disability preventing them from doing so); or
- unwilling to administer the estate;
then a person with a significant interest in the estate of the deceased person can apply to the Court of an Australian state or territory and be appointed as the administrator of the deceased person’s estate.
-
If the superannuation death benefit is received by a legal personal representative
If the legal personal representative of a deceased fund member receives a superannuation death benefit, then that benefit forms part of the estate of the deceased person and is to be distributed in accordance with:
- the terms of the deceased member’s Will; or
- if the deceased member failed to leave a valid Will, then the benefits will be distributed in accordance the laws of intestacy in the state or territory they are domiciled. The legal personal representative may be required to pay death benefits tax on the receipt of the death benefit, depending on the components of the death benefit and the status of the ultimate beneficiary of such funds.
Generally, death benefits paid to a financial dependant of the deceased member will be paid to the financial dependent tax free.
Conclusion
Superannuation is a crucial component of most Australians’ asset mix, but it is frequently overlooked by many individuals when considering their estate planning objectives. Superannuation law, together with applicable taxation legislation, is also extremely technical and complex, and obtaining specialist advice is paramount.
Contact us
For tailored advice to meet your estate planning objectives, including your superannuation benefits, whether held in retail or industry funds, or self-managed funds, please contact our Wills, Trusts & Estates team.
| Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
Liability limited by a scheme approved under Professional Standards Legislation. ©2023 Rigby Cooke Lawyers |