Executors (or Administrators) have a fiduciary duty to gather the property of deceased Estate for the beneficiaries.
If the deceased was a member of a superannuation fund, the Executor’s duty will often include collecting any Superannuation Death Benefit for the Estate.
Superannuation Death Benefits
Superannuation Death Benefit payments are regulated under the Superannuation Industry (Supervision) Act 1993 (Cth) and Superannuation Industry (Supervision) Regulations 1994 (Cth).
When a member dies, super benefits can only be paid to the member’s Estate, or to a “dependant” as defined in the SIS Act. Usually, the deceased’s dependent will be their spouse (marriage, most de facto relationships) or children. However, dependents also include persons who lived with the deceased, and were in a close personal relationship with them, and who had a relationship with the deceased based on financial and personal support.
Obtaining the Death Benefit
Caution must be exercised where an Executor is also a SIS Act “dependant.” A conflict of interest could arise – the Executor’s ability to personally apply for the Death Benefit may conflict with their fiduciary duty to obtain the Benefit for the Estate.
A potential conflict of interest may be expressly permitted within the deceased’s Will.
However, no potential conflict will arise in two situations:
- Where the SIS Act dependant is the sole beneficiary of the deceased’s Estate.
- Where the member has made a valid Binding Death Benefit Nomination, or the rules of the superannuation fund determine who is paid the Death Benefits.
To avoid conflict risks, it is important that superannuation fund members make (and renew) their Binding Death Benefit Nominations.
Binding Death Benefit Nomination
A Binding Death Benefit Nomination is a written direction to the superannuation fund Trustee that nominates one or more beneficiaries, and indicates the Death Benefit share they are entitled to.
If the Binding Death Benefit Nomination is valid and in-effect at the deceased’s death, the Trustee must pay the benefit as directed. The Nomination is only effective once it is received and accepted by the Trustee.
Typically, Binding Death Benefit Nominations are only effective for three years from the date it is signed or confirmed. If the Nomination lapses, the Trustee will not be bound by the deceased’s instructions.
There are some exceptions to the 3 year rule:
- Large superannuation funds may allow Nominations that do not lapse.
- Similarly, Nominations for self-managed superannuation funds (SMSF) do not always lapse after 3 years.
Tax and Superannuation Death Benefits
Superannuation Death Benefit payments may have adverse tax implications.
Note that a “dependant” under the SIS Act is different to a “death benefits dependant” (a.k.a. tax dependant) under the Income Tax Assessment Act 1997 (Cth).
Income Tax Assessment Act section 302-195 defines a death benefits dependant as including:
- the deceased’s current or former spouse;
- the deceased’s child, under 18 years of age; or
- a person the deceased had an interdependency relationship with; or
- or a person who was financially dependent on the deceased at the date of death.
If all of the Estate beneficiaries who may benefit from Superannuation Death Benefit are Income Tax Assessment Act dependants, the Executor will obtain the Death Benefit tax-free.
However, if one or more of the beneficiaries who can benefit from the Death Benefit were not Income Tax Assessment Act dependants, the Death Benefit payment is subject to taxation. For example, a child who is 18 years or over.
For further information about potential tax implications, please contact your financial adviser.
Seek Expert Advice
Martin Bullock Lawyers are experts in drafting Estate documents including Wills, Powers of Attorney and Appointment of Enduring Guardians.
If you need a Will, or require advice in relation to Superannuation Death Benefits, contact Greg Martin or Jacqueline Wainwright on (02) 9687 9322.