SMSF trustees should remember paying a death benefit to their estate rather than to a beneficiary remains a viable option and doing so may better fit the needs of both parties and ensure it reaches the intended recipient.
Institute of Financial Professionals Australia (IFPA) head of superannuation and financial services Natasha Panagis said the simplest reason to nominate an estate to receive death benefits was where there were no Superannuation Industry (Supervision) (SIS) Act dependants, but it could be used to address other legal restrictions.
“An individual will need to nominate the executor of their estate, who is their legal personal representative, and make the necessary arrangements in their will if they don’t have any SIS dependants or if they wish to direct their super death benefits to someone who is not a SIS dependant,” Panagis said during an IFPA webinar today.
SIS dependants are a spouse, children, a financial dependant and a person in an interdependency relationship, but directing the benefit to the estate would allow it to be paid to a parent, sibling, cousin or friend, while also removing any uncertainty about where it will go.
“You might want to nominate the estate if you’re uncertain whether your beneficiary will qualify as a SIS dependent,” Panagis said.
“For example, your financial or interdependency status with a particular person may be contentious and you’re unsure if they’ll meet that definition.
“Alternately, you’re forced to pay it out of the super system because the beneficiary has met the transfer balance cap limit or there is no surviving spouse.”
She noted that where an intended beneficiary was a SIS dependent, attention should be given to any loss of any tax benefits and income streams that may come from the death benefit before directing it to the estate.
“Deciding whether the beneficiary or the estate should be nominated should involve consideration of a number of factors, including whether the beneficiary is eligible to commence a death benefit income stream, what are the advantages and disadvantages of doing that and what taxation applies on the initial receipt of the benefit and subsequent investment of those proceeds, as well as any social security implications,” she said.
