The main rule when paying death benefits from superannuation is to make sure the right person receives the right benefit at the right time. The trustee of an SMSF is responsible to make sure those things take place.
When a member of an SMSF passes away, it is useful for purposes of paying benefits if they have provided the trustee with clear instructions on who should receive their benefits. Is it to be the deceased’s surviving spouse, children, other dependants who receive the benefits; or will the benefits be paid to their estate for distribution as provided in their last will and testament? But what happens if the deceased had failed to include complete and valid documents in the fund’s records while they were alive? Who will it be paid to then? The courts are littered with case after case of people who did not provide instructions on how their superannuation should be distributed or did not leave a will.
One of the most important things to understand about superannuation and a person’s estate is that they are completely separate. The reason for the difference is that their superannuation fund and estate consist of two completely different trusts, and each has their own set of rules and laws that are required to be followed.
It is not possible for a person to direct the trustee of a superannuation fund on how the benefits are to be paid from the fund through the instructions in a will. For example, if a person’s will directed that the super fund trustee was to pay their super for the benefit of their surviving spouse and children, it would have no effect. The trustee of the super fund is bound by the provisions of the fund’s trust deed and any directions given by a member directly to the trustee for the payment of their death benefits. The trust deed will include rules about who can belong to the fund, how decisions are made, appointment and removal of trustees, and the payment of benefits.
It is possible for a person to direct the trustee of a super fund to pay the whole, or part, of their benefit to their legal personal representative as executor of their estate. If the direction is valid, then the superannuation benefit paid by the fund trustee to the person’s estate will be distributed as provided in their last will and testament.
It is also possible for a member to direct the super fund trustee to pay benefits to dependants, such as their spouse, child or anyone who is dependent upon them for support at the time of their death. However, if a clear direction has not been given to the trustee, it may be up to the trustee to determine who will receive the benefits. This may mean that the amount could end up in the hands of someone not intended to benefit from the deceased person’s superannuation. In making the decision to pay the benefit, the trustee must act with due consideration and certain issues may arise if the trustee has acted recklessly in deciding who should be the recipient.
So, the most important thing about payment of anyone’s death benefits from a superannuation fund is to make sure any documents relating to the payment are absolutely correct and in line with the fund’s trust deed. If they have not been completed exactly as required, then the benefit may end up being paid by the trustee contrary to the intentions of the deceased.
The types of documents required in relation to the payment of a death benefit include:
- binding death benefit nominations;
- appointment of a reversionary pensioner who may be eligible to receive a continuing pension after the person’s death;
- nomination of the person’s legal personal representative if benefits are to be paid to their estate; and
- current trust deed of the SMSF which should indicate how death benefits are to be paid.
The importance of documenting the payment of death benefits cannot be underestimated and it will be quality of those documents which will determine whether the right person receives the right benefit at the right time.
While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.