Dealing with Superannuation After Death and SMSF Death Benefits

One of the most time-consuming and complicated tasks when dealing with a sizeable Estate as an Executor or Administrator is the inventory of assets and their sale or distribution.

While the identification and disposal of certain Estate assets like bank accounts, vehicles, jewellery and art are more or less straightforward, things can (and do) get a bit confusing when it comes to superannuation after death in Australia and self-managed super funds, or SMSF death benefits.

If you have been designated as Executor or Administrator of an Estate and you’re unsure about how to proceed with superannuation after death or SMSF death benefit, then this article is for you. Here, we’ll discuss the proper way of dealing with self-managed super funds (SMSFs) and superannuation after death.

1. Deceased Superannuation and SMSFs

Superannuation or ‘super’ is a compulsory payment made by employers to support their employees’ needs during retirement. If the deceased person worked at any point in the last 30 years, they most likely have a super account.

Super funds in Australia are invested in certain assets to enhance super fund performance. This will grow the superannuation fund balance to give superannuation account holders the best possible financial outcome during their retirement.

Self-managed super funds (SMSFs) work like any typical larger superannuation fund. However, they are regulated differently by the government and are administered by all members collectively. Moreover, SMSFs cannot have more than six members who, more often than not, comprise family members.

In effect, an SMSF is a lot like a trust where members are either appointed as trustees individually or are directors of the company designated as trustees. In any case, the SMSF members run the fund and may not be paid for fulfilling their duties as trustees.

2. What Happens to Superannuation After Death and How Can Death Benefits be Claimed?

Ideally, a person’s superannuation or SMSF is meant to be enjoyed during retirement. However, when the person dies, their share of a superannuation fund is not something they can take with them, just like their other earthly possessions.

And while people may be quick to assume that the Testator’s (the deceased person who left a Will) superannuation account automatically becomes part of the Deceased Estate when they pass away, this is not the case.

This means that even in the presence of a Will where the wishes or instructions of the Testator clearly spell out to whom the super death benefit is supposed to go, the super fund is not necessarily duty-bound to follow the Will.

The reason is that superannuation fund benefits are not considered part of the Estate, nor can they be gifted in a Will, as the superfund is owned and managed by a trustee (or the company holding the superannuation fund). Meanwhile, SMSFs have a trust deed that governs what happens in the event that the SMSF owner dies and how funds are distributed.

Thus, when a super fund member dies, trustees are responsible for distributing the deceased’s superannuation after death according to the terms of the deed. If the deceased nominated certain Beneficiaries or dependants when they set up the fund, it is those people who will receive the superannuation benefit, not the deceased person’s Estate.

3. When Super and SMSF Death Benefits Become Part of the Deceased Estate

Super fund members and SMSF member-trustees can nominate certain Beneficiaries who may receive the death benefits when they (the member) pass away. Eligible super Beneficiaries can be:

• The member’s spouse or de facto partner
• The member’s children
• Someone in an interdependent relationship with the deceased member
• A person who is financially depended on the member at the time of the member’s death
• The member’s Estate or personal legal representative (PLR)

In the last case where the super fund member had designated their Estate or personal legal representative as their binding Beneficiary, the super death benefit will be paid to the Estate or can be considered part of the Estate.

In such cases, a superannuation fund can be used to pay the death benefits, or part of them, to the deceased member’s legal personal representative (i.e., the Executor or Administrator of the Estate). Moreover, the superannuation death benefits become part of the Estate in adherence to the deceased person’s Will. The rules on intestacy will apply if there is no Will, subject to the applicable court order.

Who the superannuation death benefits go to will depend on several factors, such as the terms of the trust deed of the superannuation fund, applicable laws and rules, and any current valid Beneficiary nominations made by the deceased prior to their passing.

In the case of SMSFs, the Executor or Administrator is tasked to administer the shares of the deceased member-trustee, and the appointed personal legal representative takes charge of selling those shares.

4. Types of Super Death Benefit Nominations

As the appointed personal legal representative (Executor) of the deceased or Administrator, it’s crucial for you to understand the different super death benefit nominations the deceased owner of the Estate could make in relation to their super fund. Knowing exactly the type of nomination the deceased person made would determine the role you will play in the deceased superannuation death benefit claim.

4.1 No Nomination

If the deceased member made no nomination, the trustee would have full discretion over where the death benefits will go — either to a dependent who the trustee deems to be the eligible Beneficiary or the Deceased Estate.

4.2 Non-binding Nomination

If the deceased member made a non-binding nomination for their super fund, the trustee would still make the final determination as to who will receive the super benefits. The super fund trustee is charged with locating all potential Beneficiaries and choosing the one(s) they deem to be the most appropriate recipient(s).

4.3 Binding Nomination

A binding nomination is a signed document given to a member’s super fund, which explicitly states to whom a member would like their super to be paid when they pass. Because of its binding nature, this type of nomination does not leave the super fund trustee any discretion in the distribution of super death benefits.

However, there are two types of binding nominations: lapsing and non-lapsing.

• Lapsing nomination: This type of nomination typically expires after three years — unless the member renews it.
• Non-lapsing nomination: This kind of nomination may never expire if it is correctly, legally executed. This means using the correct form and ensuring all legal requirements are met, including any witnesses (non-Beneficiaries) signing the nomination document and following the super fund’s submission guidelines.

A complication you may encounter as an Executor or Administrator regarding binding nominations is when the member’s nominated super Beneficiaries or dependants do not match the ones mentioned in the Will.

For example, the deceased nominated their ex-spouse and their children as super Beneficiaries in a non-lapsing binding nomination made when the couple’s marriage was still intact. However, in the updated Will, the Testator named their de facto spouse, their children from their ex-spouse and children with their de facto spouse as super Beneficiaries.

The deceased member’s failure to update their nomination in accordance with the changes in their life circumstances could mean their children with their de facto spouse and the de facto spouse themself lose their share of the death benefits.

As the binding Beneficiary of the Estate, you are duty-bound to follow the directions of the deceased in the Will they left behind. However, suppose the Estate or yourself as the personal legal representative (Executor) is not a binding Beneficiary. In that case, the applicable super fund legislation and the latest valid Beneficiary nominations of the deceased will apply and should be handled directly by the Beneficiary with the relevant fund.

5. Tax implications on Superannuation Death Benefits

It is important to note that Beneficiaries may be taxed between 15-32% on superannuation death benefit payments unless the Beneficiary is a dependent person like a spouse, former spouse, minor child, or a person who is financially dependent on the deceased person at the time of the death. We recommend you seek tax advice about your situation as there may be options that may have been put in place to reduce the nominated Beneficiary’s tax liability via income stream or Superannuation Testamentary Trust arrangements.

6. Tasks of the Executor or Administrator

In dealing with the super fund, the primary tasks of the Executor or Administrator involving the deceased’s superannuation fund of the deceased would be to:

• establish if the deceased person had more than one superannuation account;
• find out if there is any lost superannuation for deceased or if any unclaimed super exists;
• contact the fund to establish if an account in the deceased person’s name exists;
• find out if there are funds available that would form a death benefit payable;
• check if there are named Beneficiaries with the super fund trustee; and
• determine if additional claimable services are included with the super fund, such as life insurance.

Establishing if there was a fund and where the death benefit would be paid is part of your responsibilities as Executor or Administrator even if the super fund is not turned over or considered part of the Estate.

If the super fund is not left to the Estate, it will be omitted in the assets and liability inventory intended for Probate application.

When you make a claim for superannuation after death in your role as Executor or Administrator, you’ll need to produce some or all of the following documents:

• A copy of the member’s Death Certificate
• Grant of Probate or Letters of Administration to legally prove your authority to make a claim as Executor or Administrator
• The deceased member’s completed and signed superannuation payout form
• Valid identification, such as a driver’s license

The super fund will process your claim and deliver you the money once you’ve supplied all relevant papers.

After these items are ironed out, there are certain steps that usually follow, which may vary depending on the deceased superannuation fund.

• Ask for these details: names of the nominated Beneficiaries, super fund balances, and any other amounts payable.
• Fill out all required forms and the application for death benefit payment.
• The superannuation fund or SMSF conducts an evaluation of the relationship between the deceased and the dependants or Beneficiaries.
• Once the previous step is done, the superannuation fund or SMSF will inform you of the assessment outcome and the dependants or Beneficiaries who will be paid the death benefit.
• If needed, you may request an appeal regarding the superannuation fund’s or SMSF’s decision. For example, if a minor legal dependant or child of the deceased member has been left out of the death benefit payment simply because the deceased failed to update their nomination. The appeal can be escalated further with the Superannuation Complaints Tribunal (SCT) within 28 days if it remains unresolved at the super or SMSF level.
• Finally, the superannuation fund or SMSF pays out or releases the death benefit to the Beneficiaries.

If you need superannuation advice in Australia related to your Estate Administration tasks, or if there is a dispute regarding the super or SMSF, it’s crucial to seek legal advice from lawyers in Perth, Sydney, Melbourne and Brisbane with the required expertise in this area.

Get Help Dealing With Super or SMSF

Navigating your role as Executor or Administrator can be quite challenging, especially if you do not have the right tools, information, documentation and legal advice for efficient Estate Administration at your disposal.

We recommend you speak with a financial planner, tax lawyer or superannuation specialist if you wish to discuss your specific situation, if the super or SMSF forms part of the Estate and if taxes apply. We may be able to point you in the right direction if you book a phone appointment with simplyEstate. Additionally, you might find our Estate Administration Guide, Checklists and Tools, and simplyNotify service to inform super funds and other service providers of the death useful.