Looking After Your Legacy
No one likes to talk about it, but death and taxes are the two certainties of life. Unfortunately, it’s crucial to think and talk about both if you want to look after your legacy. For a lot of people, Super becomes one of the most significant assets you own, so it’s vital to consider what you want to happen with this when you die.
What happens to my super when I die? Contrary to popular belief, Superannuation does not automatically go to your estate when you die. Instead, the Trustee (the person in charge of your super) determines what happens with your Super. For those of you with a third party Super Fund, this is a board of people who are elected to act in your best interests; however, if you have a SMSF (Self-Managed-Super-Fund), this is you (plus the other members of your Fund).
The Trustee needs first to determine who your beneficiaries are. They can include – spouse, ex-spouse, children (including adult children), stepchildren, or other people financially dependent on you. If you die with no nomination, it is the Trustees job to locate the dependents and pay your Super to one or all of them. This may not be what you want.
How do I ensure my wishes are followed? First step – have a valid will. Second step - ensure you have a valid binding death nomination or death benefit agreement in place for your super. This means the Trustees have to do exactly what you have indicated. There are several ways to do this:
Make a nomination to your Fund Binding. A 'binding' nomination is just that – it's binding on the Trustee, and they must comply with your wishes. To make sure that this is binding it must be renewed every three years. A binding nomination that is greater than three years old becomes a non-binding agreement, meaning the Trustee can decide not to follow your wishes.
Consider a death benefit agreement. A Death benefit agreement is a document you sign that removes the three year limit on binding nominations and makes the agreement forever lasting. This has the same effect on the Trustee in that the Super must be paid in accordance with the agreement.
How much is my super worth when I die? One mistake a lot of people make when preparing a death nomination/agreement is what makes up your super balance on death. In short, it’s your member balance plus any life insurance you have. If your super member balance was $500,000 and you have $500,000 worth of life insurance the death benefit payable would be $1m. That’s a lot of money to consider for your beneficiary.
Can I nominate anyone? You can only nominate the following people to receive your super balance:
Anyone who is financially dependant on you when you die
Someone you were financially dependant on when you die
It’s essential you have a handle on your entire estate plan. There are a lot of tax considerations when thinking about what assets to leave to which of your beneficiaries. You need to ensure you look at your super assets, your personal assets and your business assets (i.e. your entire empire) in totality to ensure everything is exactly as you want to leave your legacy. This includes tax considerations on sale of assets and or super death benefits.
Death and Superannuation is complicated. But if you prepare, it can be straightforward for your dependents when you die. Take action and review your plan regularly, and you can minimise any headaches your dependents will have when you die. You can also ensure you maximise the total benefit and ensure you really are looking after your legacy.
Alan is the co-founder of Growthwise, an accounting firm in Newcastle. Alan is an SMSF Specialist who helps people prepare for a worry-free retirement. For contact details visit www.growthwise.com.au