Death benefits from super don't need to be this complicated

With all due respect, it is not the SIS Act that needs to be changed to make your proposal feasible, the first thing you would need to change is trust law itself (which goes back centuries), with centuries of legal case law to back it. Your proposal is unworkable as suggested because the beneficiary (read member) of any super "trust" (read fund) does not actually own the assets in it, whereas a will only deals with assets that one owns personally.

Rob, once the super fund death benefit is paid to the estate, it becomes an asset of that estate for distribution in line with the Will and/or applicable legislation.

Only "IF" the death benefit is paid to the LPR or estate, not if any other beneficiaries are directly named in BDBN, etc.

In the case of withdrawing funds from super and giving to say adult children (after retirement). Is it then possible that centrelink will not give any pension ? I mean say it is an SFR not currently receiving any aged pension but is on the borderline for getting a pension.

Gifting and the 5 year rule apply.

Do it at 61, not an issue as you don't get the pension until 67.

Do it at 65, it will affect pension eligibility.

Do it while on a pension, will affect pension.

Super is counted in the pension assets test. The more super you have, over the threshold, the less age pension you get. Any gifts you make to reduce your assets will be caught in the gifting rules. You cannot gift more than $10,000 per year and no more than $30,000 every 5 years. Any gifts greater than this will be counted as an asset (reducing your pension) for the next 5 years. It’s also retrospective. Gifts made in the 5 years before applying for the pension, will also affect your pension.

It’s worth noting that money spent on the family home - to reduce your assets - will not affect your pension because the family home, of any value, is not an assessable asset.

Thanks to both of you for your replies, much appreciated. How is all of this policed. I could pay my son in law, for example $100K, to do renovations to my house which he completes in say one week.

When you apply for the age pension, your life becomes an open book. Bank statements may need explanation. Invoices will help. Inflated prices on transactions with family members will be counted as gifts. Telling lies to Centrelink may lead to unpleasant consequences.
Many people chase the age pension to get the benefits of the pension card. As a self-funded retiree you can get the same benefits (but without the pension) with the Commonwealth Seniors Health Card. It has a generous income test but no assets test. A surprising number of people are unaware of this.

Your will does not cover super death benefits for the simple reason that your will only deals with assets you own and you do not “own” the assets in your super fund. Note that your will can be challenged and that is happening with increasing frequency with more complicated family arrangements.

Your super fund is a trust under the control of a trustee and the assets are held in trust for the sole benefit of the beneficiaries. This is also true in a SMSF, where you can be both trustee and beneficiary. Trust law is complex and goes back at least to the Crusades, but the fact that you do not own these assets is what gives you asset protection in the event of bankruptcy, but not in the event of divorce.

The task of dispersal of death benefits remains the sole responsibility of the trustee who is not bound by your will. One of the benefits of holding assets in your super fund is precisely the option to keep those assets beyond challenges to your will.

Of course you have the option to direct your super death benefit to be paid to your estate where it then becomes subject to the provisions of your will. Another option is to withdraw all your super prior to death, tax-free, and distribute it to your beneficiaries as you please.

That was great info, thanks. Only problem is, we usually don't know when death is going to occur, except maybe those who have terminal illness. Even there there are plenty examples of not so miraculous reversals. Is there where Voluntary Assisted Dying (VAD) can be useful ??

The Superannuation Complaints Tribunal (STC) spends most of its time dealing with complaints about industry funds and trustees’ decisions regarding death benefits. Some funds avoid this hassle by refusing to accept binding death nominations and directing all benefits to be paid to the estate as suggested in this article. That way the Executor (and the courts) deal with any disputes.

SMSFs are not subject to the STC, so those trustees need to take extra care that the trustee they appoint to control the fund on the death of the last member has authority to act and will follow their wishes to the letter.

Nick & David, Authors. It is a straightforward solution but most know what a dog's dinner a Government will make of it with ifs, buts & ors instead of just 2 sentences. Politicians seem to like giving advice but not taking it. Not known for speed either, (6) in bibliography re Law Council letter 12/1/24 proves that. Interesting to know if a reply ever received.

Is it possible to make a financially (and otherwise) dependent daughter over the age of 30 a reversionary beneficiary?

A daughter over the age of 18 can be nominated as a reversionary beneficiary if they have a disability. Establishing that disability may be easier if they receive a Disability Support Pension. The problem may be that with an SMSF, all member/ beneficiaries must be trustees, and the disability may disqualify them from being a trustee.

The other complication is that reversionary beneficiaries are normally nominated when the account-based pension is first started but maybe your super fund can help with advice.

Failing that, you might consider a Special Disability Trust for your daughter, established now or in your will. Such a Trust has special Social Security provisions for you and your daughter.

Thank you.

Yes more nanny state govt overreach is what we need so we can save money for corporate and union fund trustees. How about you just do your job.

As most people don’t understand the system and are not advised this will cause chaos.

Spouse dies so the deceased super comes OUT OF SUPER even though the surviving spouse lives for decades more potentially and can’t contribute.

Second marriages whereby super goes to spouse and non super goes to first family/dependents.

Super trustees that only allow non binding DBN. This with apathetic Australians and growing dementia is not clever.

Requirement to have probate where in some cases it wouldn’t have been needed.

Additional costs, complexity for Australians while reducing business risk and minimal costs for trustees.

This is a self serving super trustee beneficial policy with potentially terrible consequences for un advised or poorly advised Australians.

How about less rules for super in general and how about a new concept. Super that only benefits members!!

It doesn't seem to make sense to me, that to avoid paying17.5% Tax on the Super balance death benefit to a non-dependant you can simply sell all assets before death and invest outside super tax free. It's the same asset, yet this simple act could save $87K on a super fund balance of $500,000!
This is indeed a death tax that many people are unaware of.
My late daughter was a nurse for 33 years, she helped many people and had to put up with abuse, being spat on, slapped and punched when working in A&E. She died at age 57 years with just a small amount in super, her sole beneficiary, her non-dependant adult daughter is now hit with this unfair tax.

As your daughter was only 57, she could not withdraw her super funds, so she was caught in this "Death Tax" trap.

Diagnosed with a terminal illness and less than 2 yrs to live you can access your super tax free. Need medical appropriate certificates etc.
The sudden passing is a challenging suitation as the non-dependant recipient is exposed to the death tax arrangements. I have thought that transferring these monies to the recipients super would be and option to maintain the tax advantages.

I really hope to see reform in this area soon. A family member made a non binding nomination to his Estate, but signed a lease with a new partner shortly before dying by suicide. The new lease was as good as a marriage license despite the short timeframe and volatile nature of the relationship. The partner was also emotionally abusive and engaged in misconduct in the coronial investigation but the fund still ruled in favour if the new partner. The dispute is ongoing with AFCA.

Or ... when nearing the end of your life withdraw all Super (yes, more forms !) and dump into high interest bank account. Then these funds become part of the estate AND avoid any potential death tax (17.5%) if they were to be left to non-dependants in Super.

This is correct but it highlights the madness of the rules. If you have 24 hours’ notice of your impending death you can do this but if you are unfortunate enough to die suddenly then your super can be taxed as it is paid to beneficiaries.

The simple solution is to apply the tax rules to the deceased and their super benefits rather than apply them to the beneficiary. If a person is entitled to withdraw their super tax free because they have reached a condition of release then their super balance should be tax free regardless of who receives it. It is grossly unfair to have a system that taxes people who die suddenly differently to those who have notice of their impending demise.

If so many Australians have a will and most have superannuation, yet so few know that super does not form part of their estate, the it behoves the lawyers who "advise" their clients to make sure that they understand this when they prepare their wills. A simple BDBN to your estate gets around the current problem. However, maybe the simplest solution is to change the law so that the default position is that super is paid to your estate. If you don't want this then you can do a BDBN.

They are fee collecting machines. Any customer service at all if it involves giving you money back,merging accounts etc doesn't exist. Delay ,deny die.You can't fill the forms in correctly,you never will be able to fill them in correctly.

Any service where you give them money is tick the box,you are in.Try to give us as much as you can.Comes to getting it back,go away,stop bothering us

what a depressing response, please try to cheer up Kevin

The Law Council of Australia is always keen on more paid work for lawyers but the case for paying death benefits to the estate of an individual is not that clear cut. It would reduce work and costs for funds but would lead to greater cost, complexity and delay for death benefit recipients. It would also mean that potential beneficiaries who miss out would need to hire a lawyer and take Supreme Court action rather than identifying themselves to the fund trustee as a potential beneficiary with AFCA a low cost dispute resolution body available if case of disputes.

Within a SMSF with a Corporate Trustee it is actually very simply:

"I give all my shares in XXX YYYYY Fund Pty Ltd (XXXXXXX), and any company
that is the trustee of any nominated superannuation fund to my Trustees with a direction to:

a. do all in their power to ensure that the trustee of such fund exercises any discretion
available to them pursuant to the fund deed to ensure that any death benefits are paid
in a manner to give effect to the division of my estate as provided in this my will,
subject to any nomination made by me in relation to those benefits; and

b. distribute the shares as part of the remaining balance of my estate once the
distribution of my death benefits has been determined, having regard to the
discretionary powers available to them...."

BUT I am not a lawyer or accountant!! The key is to have a Corporate Trustee which makes the whole process clear and relatively clean. The current fiasco about delays of years in paying benefits is a disgrace. Having worked in the Industry I can recall a Death Benefit being paid inside 10 days in tragic circumstances

Problem currently is that doing a BDBN is simply not possible with lots of funds, as they don't allow them. You can only do a standard non-binding nomination, which they will then hassle you routinely to review, but which they also have no means of detecting whether you've "reviewed" said nomination or not...

This is but a thought of setting up our SMSF as long as on member is alive and a trustee no waiting on a complete stranger to decide if you or some random gets our assets.It only takes 2 minutes on a large funds review page to realise it’s going to be a fight and long wait until assets get released.

As an advisor, I know that most death benefits in both retail and industry funds are not controlled by a properly executed BDBN.You say less than 10% of industry fund members have BDBNs

Part of the issue is that many retail funds insist on having the BDBN renewed every three or five years. Some funds, but not all, will send out a fresh form to the member for completion. But that BDBN has to be witnessed as if it were a will i.e. the signature of two witnesses who are not beneficiaries. That causes complexity and delay and most people leave those BDBN forms on the kitchen bench with all the other matters that need to be looked at, later on.

I'm not sure that a compulsion for a trustee to pay death benefits to the estate unless there is a BDBN in force is necessarily the solution. Advisers know that most people don't have up-to-date wills or even properly executed wills and that's a factor of some of the excessive fees that are vcharged by some estate planning law firms. And the proposition ignores the fact that there are a number of super members out there who have a will picked up from the newsagency, or don't in fact have a will.
The alternative is not appealing either. Trustees have huge discretion and often make ridiculous mistakes without sufficient enquiry. And for advisers there's the quandary of not being able to examine the trustees rules for each industry and retail fund for which their clients are members. There appears not to be any standard rules.

Isn't there is scope somewhere for the government to do direct that BDP ends be easier to execute for members.

I agree that the current system is less than ideal, and changing it so that the death benefit goes to the estate by default is fine. I disagree though with the wording "the only possible exception would be where the member has made a valid BDBN", because if the member has deliberately made a change to the funds going to the estate then that has to be accepted rather than just being a "possibe exception". There are plenty of cases where the deceased made a deliberate choice to use a binding nomination to certain parties and exclude others, in particular with second marriages or estranged families, and we need to respect the choices made.