Plan Your Super for the Future: Avoiding Problems After Death

Unlike other assets, superannuation is treated differently under the law, which is why it's important to think separately about it. Thabojan Rasiah, principal of Rasiah Private, emphasizes the importance of making a binding death benefit nomination for your superannuation. Here are a few tricks to consider:

• Sign a binding nomination instead of a non-binding one to ensure compliance from the fund trustees.
• Consider signing a non-lapsing binding nomination, which remains valid until you decide to change it. Lapsing nominations generally expire after three years.
• If no nomination is made, the trustees will decide how to distribute your super funds after your death. Typically, it will go to your dependents or follow the instructions in your will.

Understanding Super Death Payments and Taxes

Super money left directly to dependents, such as children under 18, current and ex-spouses, de factos, and financially supported individuals, is not subject to tax. Children under 25 who are students or dependents are also exempt from tax on super death payments. However, non-dependents face a 15% tax plus the Medicare levy, resulting in a 17% deduction from their payout.

Shane Ellis, of Shane Ellis Legal, explains that there are taxable and tax-free components of superannuation. Taxable components include concessional super contributions, such as those made through employer super guarantee payments, salary sacrifice, or personal concessional taxable contributions, all of which were taxed at 15% upon entry into the fund. Non-taxable contributions, on the other hand, refer to payments made without any tax deduction attached, including downsizer contributions from the sale of a family home.

To avoid tax, it's important to understand the composition of your super balance in terms of concessional and non-concessional payments. Your annual statement should provide details of these two categories.

Wills or Direct Payments: Making a Choice for Non-Dependents

If your super funds will go to non-dependents, you have the option of having the money paid into your estate and managed according to your will. Paying the super benefit into your estate directly exempts it from the Medicare levy and saves you 2% on the tax bill. However, be cautious, as challenges to wills can arise unexpectedly, potentially leading to your assets not ending up where you intended.

Thabojan Rasiah suggests that directing money into your estate also offers the benefit of allowing your estate to distribute funds to designated beneficiaries, including charitable organizations. Super fund trustees, on the other hand, have restrictions on who they can pay to.

Addressing Philanthropy and Superannuation

The super system holds substantial wealth, with an estimated $2.6 trillion expected to be transferred to heirs in the next two decades. Unfortunately, current tax laws make it challenging for charities and good causes to receive a stake in these inheritances. Charitable giving must go through wills, which are subject to a 15% tax, rather than direct payments from super funds.

CEO of Philanthropy Australia, Jack Heath, advocates for a change in this arrangement and believes that philanthropic bequests should be able to be made directly from superannuation. With the Australian government aiming to double annual philanthropic payments by 2030, there may be potential for reform in this area.

While considering how your super will be managed after your death, it's essential to consult with financial advisors and professionals who specialize in estate planning and related matters. By taking proactive steps and making informed decisions, you can ensure that your super funds are allocated in a way that aligns with your intentions.

Please Note: If this information affects you or is relevant to your circumstances, seek advice from a licensed professional.

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