Superannuation assets are governed by different legislation and tax rules to many of your other assets, especially if you die before receiving all of your super, and can therefore make estate planning or incorporation into your will quite complex.
Unlike your other assets, unless you have a valid binding arrangement with the Trustee for your superannuation savings, the Trustee is required to make a determination about how your super is distributed to your beneficiaries (or estate) if you die as a member (but will use your will as a guide to your wishes).
By nominating a beneficiary (or beneficiaries) to receive your super if you die, you assist the Trustee in distributing your death benefit* in accordance with your wishes. You can generally nominate any or all of your dependants. If you do not have any dependants, your money may be required to be paid to your legal personal representative or your estate.
There are three different types of nominations – binding, non-binding and reversionary (income stream members only).
If you die without completing and returning a valid Nomination of Beneficiaries form or your form nominates ineligible people, the Trustee may be unable to act in accordance with your wishes. In either case, the Trustee will contact your known family and employer as part of the process of identifying potential beneficiaries and deciding how to distribute your super. The distribution will be based on the Trustee’s assessment of each beneficiary’s dependency on you.
By keeping your nomination of beneficiaries up to date, the Trustee will know how you want your money distributed. It’s a simple matter of completing a Nomination of Beneficiaries form or an income stream reversionary nominations form and sending it to AvSuper. Your previous nominations for the relevant account are automatically cancelled when a new form is received.
Who is a legal dependant?
Your dependants will generally be your spouse (including de facto and same sex spouses), children, legal personal representative and any other person with whom the Trustee determines that you had an interdependent relationship as at the time of your death.
Two people are considered to have an interdependent relationship if:
- they have a close personal relationship; and
- they live together; and
- one or each of them provides the other with financial support, and
- one or each of them provides the other with domestic support and personal care.
An interdependency relationship also exists where there is a close personal relationship and either or both people suffer from a physical, intellectual or psychiatric disability. In these circumstances there is no requirement for cohabitation or provision of financial or domestic support.
A close personal relationship is one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. The definition is not intended to include people who share accommodation for convenience, such as flatmates, or people who provide care as part of an employment arrangement or on behalf of a charity.
To receive the most favourable tax treatment, the dependant your death benefit is paid to must also meet the definition of a death benefit dependant in the Income Tax Assessment Act 1997.
A death benefit dependant is defined as your spouse or former spouse, child aged less than 18, any other person with whom you had interdependent relationship immediately before your death or any other person who was financially dependent on you immediately before your death. Generally a death benefit dependant will get the money tax free however a binding nomination to your estate will be taxed so your executor will need to understand these tax rules in order to reclaim any relevant tax.
* Your superannuation death benefit includes the balance of your super savings and any relevant insurance payments.