Super changes have made dying more complex

Bruce Brammall, 7 November, 2018, Eureka Report



Complex question mark

SUMMARY: What you need to know and do about your super before you die – super estate planning basics.

Death is never easy for those left behind. And when it comes to superannuation and death benefits, it’s become a whole lot messier in recent times.

The introduction of the $1.6 million transfer balance cap (TBC) will, for many, lead to far more complex considerations when a partner dies, particularly where there are combined superannuation pension balances that exceed the new TBC.

Estate planning is an important part of superannuation that too few people, even self-managed superannuation trustees, understand. And it’s an area where, increasingly, advice needs to be sought.

The basics of superannuation estate planning need to start with the understanding that your superannuation does not automatically become part of your will. It is separate and requires its own planning and instructions.

Non-binding nominations

Superannuation accounts will almost always allow for a non-binding death benefit nomination. This is where the member tells the trustees (of either APRA-regulated funds, or SMSFs) to whom they would like their superannuation money to pass.

Non-binding nominations, however, are left to the discretion of the trustee. The trustee might look further than the nominated beneficiaries to find others who might be entitled to a portion of the superannuation balance.

The most common complications can occur here where there are former partners of the deceased, who might expect to receive some sort of financial benefit. For example, this might include a former partner who was still receiving maintenance from the deceased at the time of death, or estranged children.

In most cases, the trustee will follow the wishes made in the non-binding nomination. But anyone who might have concerns about others having a potential claim on their super might want to investigate a binding death benefit nomination (BDBN, see next).

Non-binding nominations were the original estate planning option and should be offered by all super funds.

Binding death benefit nominations

A step up from a non-binding nomination is a binding death benefit nomination (BDBN).

A properly constructed BDBN takes away the discretion of the trustee. If properly documented, the instructions must be followed by the trustee.

Note: Nominations (both binding and non-binding) still need to be made to those legally eligible to receive a superannuation death benefit, known as dependants. These include spouses, children and those in an inter-dependent relationship with the deceased. It can also be left to the deceased’s legal personal representative (LPR).

Legal Personal Representative

Leaving benefits to your legal personal representative (LPR) is how you can have your superannuation dealt with via your will.

If a non-binding nomination to your LPR is given, the trustees will still have discretion to determine who to pay the funds out to. If a BDBN is used to leave the money to the LPR, then the super fund will not have discretion.

Reversionary Pensions

There are different considerations to be made once a pension has been started by the deceased.

Instructions to create an automatically reversionary pension (ARP) upon death can allow the deceased’s pension to continue on to their dependants.

This allows the money to remain in the tax-friendly superannuation system, rather than being paid out as a death benefit.

The issues that arose out of the changes that came into force on 1 July 2017 are where, potentially, both the deceased and the survivor have pensions and their combined total balances exceed the $1.6 million transfer balance cap (TBC).

Let’s take Rob and Mary. Both have pensions of $1.2 million and both have automatically reversionary pensions in place. Rob dies soon after setting up his pension.

If Rob had an automatically reversionary pension in place, then the pension will revert to Mary. However, this would mean that Mary now has $2.4 million in pensions.

The legislation doesn’t allow for this to continue, but in the event of death where there is a ARP in place, Rob’s pension won’t count against Mary’s Transfer Balance Account (TBA) until 12 months after Rob’s date of death.

Mary now has, essentially, a year to make decisions about what to do with the combined pension accounts she now controls.

Those options include rolling back a portion of her pension ($800,000) to accumulation, so that she can continue to receive Rob’s $1.2 million pension and then have a $400,000 of her own pension, which would keep her under the $1.6 million TBC.

Mary might also wish to take Rob’s pension, or a portion of it, as a death benefit lump sum, which would take it out of the super system.

Rob’s pension balance cannot be turned back to accumulation. It either needs to be paid as an ARP to Mary, or paid out of super as a death benefit.

The ATO has warned that the ability to keep Rob’s pension in the system can only come if there is a ARP in place. If there is any level of discretion left to the trustee, then it is not considered to be an ARP and will have to be paid as a death benefit pension.

Transition to retirement pensions

From 1 July 2017, transition to retirement pensions (TTRs) aren’t considered to be in pension or retirement phase and therefore can’t be converted to reversionary pension. Only account-based pensions (ABPs) can.

This is another reason it is important for members to convert TTRs to ABPs at their earliest opportunity – generally ceasing an employment arrangement after turning age 60.

Getting advice is critical

Generally simple affairs will be able to be neatly dealt with via death benefit nominations. But for anyone with a degreee of complication, including having pensions ore more than $1.6 million in combined pensions for a couple, getting the right advice is critical.

Today, I have only covered the basics of what needs to be considered when it comes to estate planning for your super.

Having money come out of super when it could have stayed and paying out death benefits to the wrong people can lead to horrendous tax consequences for your surviving family.


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: . Bruce’s sixth book, Mortgages Made Easy, is available now.


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