Is there a superannuation beneficiary of deceased estate? Yes. Superannuation is a type of retirement savings account. An employer should contribute a percentage of his/her employee’s earnings to the employee’s super account. The super pool can then keep increasing until the employee retires. There are two types of superannuation funds and accounts available:
- Accumulation funds; and
- Defined benefit funds
Here are the categories of superannuation funds:
- Retail superannuation fund
- Industry superannuation fund
- Public sector superannuation fund
- Corporate superannutaion fund
- Self-managed superannuation fund
When a person dies, their super provider usually pays any remaining superannuation death benefits to their nominated beneficiary. A super is paid after a person’s death. People can nominate the beneficiary for their super with their provider if the rules of their provider allow it.
There are two types of nominations that a person can use when naming a beneficiary of their deceased’s estate. These are:
1. Binding Death Benefit Nomination
People can use binding nominations if they want to name one or more dependents or if they want their executor to receive their superannuation death benefits. A testator appoints an executor in their Will, and the executor handles estate and asset administration, and also pays off the debts of the Will-maker. If a deceased person did not make a nomination, the provider’s trustee may:
- Decide which dependant receives the superannuation death benefit
- Make a payment to the executor for distribution in accordance with the deceased’s Will
2. Non-binding Nomination
A person may use a non-binding nomination if they want to instruct a trustee to give their superannuation death benefits to a superannuation beneficiary of their deceased’s estate. The trustee of the provider may do the following if the deceased made a non-binding nomination:
- Use their discretion to pay based on the non-binding nomination
- Make a payment to the executor of the deceased’s estate for distribution in accordance with the deceased’s Will
Income Tax Assessment Act
According to the Income Tax Assessment Act 1997 , a resident taxpayer’s assessable income includes all ordinary income derived directly or indirectly from all sources. This is the case whether the income generated is in or out of Australia during the income year.
What if There’s No One Nominated To Receive Superannuation Death Benefits?
If a person doesn’t nominate someone, his/her trustee may pay their death benefit to their estate. The trustee may also use their discretion to determine which eligible beneficiary can receive the money. However, this will depend on the super fund. It’s important that people with super nominate their beneficiaries since trustees may not distribute payments as intended.
Who Can Act as a Superannuation Beneficiary Deceased’s Estate?
There are different rules for determining who is a superannuation beneficiary when making a super death benefit payment. Superannuation law determines who receives a death benefit, and taxation law determines tax on death benefits. According to superannuation law, a person is a superannuation beneficiary if they are:
- The spouse or de facto partner of the deceased
- A child of the deceased (any age)
- A person who has an interdependent relationship with the deceased person
- A person who was financially dependent on the deceased
A person has an interdependent relationship with the deceased if they are having a close personal relationship with them. This includes the deceased providing financial, domestic, and personal support for them or vice versa. For tax purposes, a superannuation beneficiary of the deceased’s estate is:
- The spouse or de facto partner of the deceased
- A child of the deceased under 18 years old
- A person who has an interdependent relationship with the deceased
- Any other person dependent on the deceased
Two people may have an interdependency relationship for tax purposes. This is if they have a close personal relationship and do not meet one or more of the other requirements of an interdependency relationship listed above. Reasons for not meeting one or more of the interdependency requirements are physical, mental, or psychiatric disability.
Superannuation Beneficiary Deceased’s Estate: Paying The Super Death Benefit
1. Lump-Sum Payment
Lump-sum superannuation death benefits paid directly or through an executor to a tax dependant are not taxed while super benefits paid to a non-tax dependant are. Tax will only be payable on any taxable component of the lump-sum super benefit for a non-tax death benefit dependant. This may include both a taxed and/or untaxed factor.
The taxed factor is taxed at a maximum rate of 15% plus the Medicare levy. The untaxed portion is subject to a 30% maximum tax rate plus the Medicare levy. It is important to note that an untaxed element will typically only exist if:
- The superannuation death benefits include proceeds from a life insurance policy held by the fund
- The superannuation death benefits are paid from an untaxed super fund, such as certain government sector super funds
2. Income Stream
Both the age of the deceased and the superannuation beneficiary of deceased estate determine the tax treatment when death benefits are paid as an income stream. This includes its underlying tax components. Super that is paid from a taxed super is likely to be tax-free in cases where the superannuation owner and the recipient are aged 60+ at the time of the passing of the superannuation owner.
Now, for instance, what if the superannuation owner (Jeff) died at the age of 60 and the superannuation beneficiary deceased’s estate (Hazel) is also 60? The taxable portion of income stream payments of Jeff will be counted as assessable income for Hazel. However, Hazel is entitled to receive a 15% tax offset.
If Hazel reaches the age of 60, the income stream becomes tax-free. Now, in another instance, let’s suppose that the death benefit pension is paid from an untaxed fund. This will result in the taxable portion of pension payments being taxed at Hazel’s maximum tax rate with no tax offset.
This is because Hazel received the pension payments under the age of 60 at the time of Jeff’s death. If Jeff and Hazel are over the age of 60 and Jeff dies, the taxable portion of Jeff’s payments will be eligible for a 10% tax credit.
Importance of Seeking a Legal Personal Representative About a Superannuation Fund
It’s highly advisable that people seek legal personal representation from an experienced solicitor if you’re a superannuation beneficiary of deceased’s estate. JB Solicitors are knowledgeable in Wills and estates and how to identify tax implications for beneficiaries who are receiving a superannuation fund.
Should legal disputes arise, we can also offer arbitration services to determine a legally binding outcome for financial matters. Contact us today for more information about superannuation beneficiary deceased’s estate.