Masterclass – SMSF – On Death, What Happens to a Pension?

 

Masterclass – SMSF – On Death, What Happens to a Pension?

Masterclass – SMSF – On Death, What Happens to a Pension?

On the death of a pensioner the law is that a pension, also known as the member’s benefits, must be cashed as soon as practicable. It is called a death benefit payment. Super does NOT form part of a person’s estate. To do so, a person can elect to include super in their estate by completing a Binding Death Nomination to provide for the distribution of the death benefit in accordance with their will.

In the absence of a Binding Death Benefit, the trustee of the super fund may exercise their discretion and pay the super death benefit to the estate, where it can then be distributed according to the will. There is no legislative definition or APRA interpretation of how long “as soon as Practicable” is. Cashing means the literal payment of the benefit (balance) to a beneficiary and is complete when received by the beneficiary, ie transferred to their bank account or a cheque honoured. If the beneficiary is a dependent, the amount cannot be transferred to their member account by journal entries, it must be a physical movement of money.

How death benefit can be cashed

Benefits can be cashed either by:

  • A single lump sum (in cash or in-specie ie transfer the shares, or assets);
  • Part and final lump sum;
  • One or more pensions (with restrictions – only to a dependent);
  • Rollover for the purchase of one or more annuities (with restrictions – only to a dependent).

After 1 July 2007, the restrictions state that the member’s benefits can ONLY be paid as a pension or annuity to a DEPENDENT such as spouse or partner financially dependent, with restrictions on children. For children that are dependent and of age 18 or over, the child at time of death must be:

  1. Financially dependent on the member and less than 25 years of age; or
  2. Have a disability that is intellectual, psychiatric, sensory or physical or a combination, is permanent, results in substantially reduced capacity for communication, learning or mobility and requires ongoing support services;
  3. Otherwise, the death benefit must be paid as a lump sum.

If a pension is paid, unless there is a disability, the pension must be cashed up when the dependent reaches 25 years of age. Non dependents cannot receive the death benefit as a pension but they can receive it as a lump sum and certain taxes apply.

Dependents – Who are they?

A dependent is a person who is either a:

  • Spouse – Married, de facto or same sex, whether financially dependent or not, but not former spouses for super purposes;
  • Child – By birth, step, ex-nuptial or adopted and under 18 (over 18 must be financially dependent even if partial). Over 18 is still defined as a child for super benefit purposes, but not for tax purposes, unless financially dependent in some way;
  • Interdependency also applies – Evidenced by close personal relationship, living together, financial and domestic support and or personal care above a mere friend or flatmate. It may include a partner that does not meet the definition of a spouse, a close relationship but they may not live together, eg working overseas or serving a jail sentence.

The tax definition will determine how a death benefit is taxed (ie as dependent or non-dependent).

Interested to know what self-managed super (SMSF) is all about, how to get setup FREE and if it is for you? We have FREE seminars and bonuses every month Self Managed Super Fund Roadmap (all you need to know) see 1 SMSF – FREE Seminars or call us 0407 361 596

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Self-Managed Superannuation Service Providers in Australia. SuperBenefit will SET UP your SMSF and provide investment education for a better result. We take care of all your administration, accounting, ATO lodgement and audit of SMSFs, working with you and your advisors. If you want advice we can arrange one of our recommended advisors and accountants to meet with you, as we do not give advice, but take instruction only. Take control of your super, including property shares and other assets. Learn how to be your own advisor - make better decisions - by being mentored and coached to invest your own super wisely and strategically by qualified partners. Book to come to an event to find out more, or - Call us 0407 361 596, no obligation FREE strategy call.
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2 Responses to Masterclass – SMSF – On Death, What Happens to a Pension?

  1. Gay says:

    All very interesting. thank you for your Post.

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