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What Happens to My superannuation and life insurance when I die?



In a previous post here Superannuation and BDBN we outlined some basic knowledge regarding your superannuation which we aim to extend on in this post. Superannuation death benefits do not automatically form part of an estate, and as a result cannot automatically be dealt with under a Will. This is because they are considered an inter vivos contractual arrangement. If there is no nomination however, the proceeds of the policy may be regarded as property of the deceased and pass to the estate.


Due to government policy, it is commonplace for individuals to have superannuation funds and life insurance purchased through their superannuation fund, which often constitutes the largest part of a person’s estate. According to ASFA, in 2017/2018 the average super balance for Men aged between 55 and 64 was $332,700 and for Women between 55 and 64 was $245,100 (Australian Super Stats) and a parliamentary report found that there are almost 22 million active life insurance policies in Australia, (Parliamentary Report), which is why it is important that you pay particular attention to understanding what happens to it when you die.


Who Decides Where My Super and Insurance Goes?


When you die the Trustee of your superannuation fund will determine where your monies will go depending on the rules set out in the superannuation funds trust deed and in respect of any applicable legislation.


Much depends on the rules of the fund in question, but generally:


1. You can decide: If the deceased completed a valid Binding Death Benefit Nomination, then the superannuation fund is bound to follow its instructions;


2. Your super fund Trustee Can Decide: If there was no binding death benefit nomination, then the Trustee may determine based on the evidence before it, the most appropriate person to pay the proceeds to, usually a Dependant or the deceased’s Legal Personal Representative (there can be big issues with this, see McIntosh v McIntosh [2014] QSC 99);


3. The Trust Deed or Legislation can decide: Some funds are bound in their Trust Deed to only pay it to the Legal Personal Representative of the deceased to be distributed in accordance with any Will or Intestacy Provisions: for more on intestacy see this post: Where does the Estate go when you die intestate?


Who is A Legal Personal Representative and Dependant?


A Legal Personal Representative is the person appointed as Executor or Administrator of your estate upon your death. It is important to understand that the definition of dependant is different between two relevant pieces of legislation in this area of law because it can have tax implications.


Section 101(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) (the Act that tells the super fund Trustee who to pay) defines “dependant” to include:


- A deceased’s spouse at date of death (a spouse only becomes a non-dependant after divorce, not separation for more MythBusters see here: Myth Busters)


- A deceased’s child of any age;

- People who are at the date of the deceased’s death, in an interdependency relationship with the deceased;

- Dependant – ordinary meaning.


The Income Tax Assessment Act 1997 (ITAA 97) (the Act that tells us how much tax to hand over out of your benefit) defines “dependant” in ss 302 – 195 and is slightly different:


- Current or former spouse;

- Child under 18 years;

- Person with whom the deceased had an interdependency relationship;

- Dependant – ordinary meaning.


What Are The Benefits In Seeking Advice?


Superannuation is a complex area of law which is often subject to change. Self-Managed Super Funds are another area beyond the statutory superannuation funds discussed above and add a layer of complexity, which if you would like to read a bit about see this article written by Nataliya Sard SMSF article: What happens to my SMSF when I die?. The effect of tax rules on the benefit paid is also very complex see this page on the ATO website: Super death benefits | Australian Taxation Office (ato.gov.au). That is why in addition to seeing a succession lawyer, it is also important to see a trusted a financial planner and accountant who can advise you.


If you carefully plan the amount and distribution of superannuation and insurance, then the following benefits can be achieved:


- Increased asset pool to adequately provide tor those left behind;

- Protection of the asset against liability for debts, except for funeral and testamentary expenses;

- Offers opportunity to consider how the benefit is to be paid, income stream or lump sum if applicable;

- Taxation advantages – it a little known fact that the Tax Office takes the maximum allowable tax amount from death benefits that do not go to Dependants as defined above, adding insult to their loss, see Mark and Julie’s Story: 1000 Stories | WILLS & ESTATES;

- Clarity for those left behind: see the expenses paid by the estate in next weeks case: Did I update my Will ? Cahill v Rhodes [2002] NSWSC 56.


It is important to seek holistic advice, which is why we work closely with a number of trusted financial planners and accountants for our clients’ benefit.


Don’t wait until it’s too late, contact us today!

Phone: 1800 22 33 90

Email: wills@willsnestates.com.au

Or request a free call back on our website