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$700k Superannuation death benefit – can this stay in super?

Discussion in 'Estate Planning' started by K_veg, 7th Feb, 2011.

  1. K_veg

    K_veg Active Member

    Joined:
    24th Jan, 2011
    Posts:
    32
    Location:
    Milan, MI
    My father passed away last month at the age of 59, leaving everything to my mum in his will (she’s 58). He had 2 super funds with a combined balance of about $735k plus a $300k death benefit. In both super funds, he had a binding death nomination for my mum to be the sole beneficiary.

    I assumed that the $735k could stay in super, and that it would be rolled over to my mum’s account. But the super fund has told me that the balance has to be paid out to my mum as a lump sum. Is this true? Does she lose the concessional tax treatment that my dad worked so hard to secure? If she wanted it to go back into superannuation, would she pay contributions tax (including excess contributions tax) all over again?

    H E L P !!!!
     
  2. Evan

    Evan Member

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    31st Jan, 2011
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    Location:
    SA
    Please consult professional advice regarding the matter, this is not an area I have experience in however I believe the following is correct:

    As your father was under the age of 60, your mother may take a lump sum payment of his superannuation death benefit tax free.

    From here your mother may contribute some of these funds to her superannuation as voluntary contributions however would be limited to a maximum contribution of $150,000 however may 'bring forward' two years contributions for a maximum of $450,000 contribution (as long as the 3 year rolling return does not exceed $150,000).

    Anyone with more knowledge in super than myself may be able to confirm my understanding of the area. As I mentioned, I don't know a whole lot about it.
     
  3. Superman

    Superman Well-Known Member

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    Location:
    Gold Coast, QLD
    Wow - K_Veg - attention grabbing post!

    Firstly - my condolences.

    OK, it really comes down to what the superannuation funds specific rules are around the payment of death benefits.

    It is possible (depending on the individual super fund) for a death benefit to be paid to a spouse as an ongoing incoming stream (pension) rather than as a lump sum.

    It is possible the death benefit nomination that was made, and/or the rules of the super fund may force the benefit to be paid as a lump sum - which is what the super fund is acting on at this time.

    If this is the case, it is not the end of the world. The amount will be paid tax free to your mum directly (doesn't hit your dad's estate at all). Because of your mum's age, she has plenty of time to get all that money back into super (100% tax free - which will benefit you and your siblings in the future when she departs and the monies are paid to you).

    As Evan said - the contribution caps would need to be managed to ensure there are no excess contributions tax issues.

    I suggest that you and your mum get some quality advice quickly. You need someone who can stop the super fund from paying the death benefit in the interim to give time for the situation to be reviewed and see if there is another option - i.e. payment of the benefit via a pension rather than a lump sum.

    Your mum's situation highlights a couple of important issues with super:

    1 - your Will doesn't cover your super monies - it is covered by any death benefit nominations and the rules of the individual super fund

    2 - completing the simple death benefit nomination forms from an industry or retail super fund can often not give the desired outcome

    I know this is probably not the kind of issues you want to be dealing with at the moment - but the sooner you get advice and work out a strategy - the better.

    If you would like to talk to a superannuation specialist who can assist you, please let me know and I will pass on their contact details.

    If you would like me to provide more information, I can look into it is you let me know the specific name and details of the super fund your dad had his accounts.

    I hope this helps - an good luck with everything.

    SM
     
  4. K_veg

    K_veg Active Member

    Joined:
    24th Jan, 2011
    Posts:
    32
    Location:
    Milan, MI
    Hi Superman and Evan... thanks for the replies. It's such a horrible time to go through, without all the stress of winding up the estate as well! The super funds seem to tell me something different every time I call. Only 6 months before he died my dad changed the executor of his will from myself to the Public Trustee (WA)... probably wise as I don't know anything about this area, but it also makes everything take 10 times as long.

    Anyway... the 2 super funds are Colonial First State (FirstChoice Wholesale Personal Super) and Westscheme.

    Superman... if you could please let me know the details of someone to contact that would be great. I'll weigh up the cost of the advice versus what I can find out from my own investigations. My Dad was a Chartered Accountant too. Sad thing is he worked himself to the bone and never got the chance to retire and enjoy his money...
     
  5. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
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    Location:
    Gold Coast, QLD
    Hi K_Veg,

    Quick research on Colonial.

    This is an extract from Page 38 from the PDS (attached):

    This is good news and confirms that the Colonial monies at least can stay in super and be paid to your mum as a pension. It will be taxable until she turns 60 herself then it will be not reportable.

    Quick research on Westscheme

    Page 24 of the attached PDS talks about death benefits.

    It does not specify whether a pension can be taken or not, however it is possible under the 'superannuation law' for the death benefit to be paid as a pension to your mum as she is obviously considered your dad's dependent.

    However, on the surface, it looks like it will be the trustees discretion in regards to how it is paid - all they have to do to comply with your dad's binding death benefit nomination is to pay it to your mum. How they pay it is up to the trustee

    I would get on the phone to both Colonial and Westscheme armed with the above information and get some answers. If you get the feeling the person you are talking to doesn't have a clue - ask to talk to someone else (more senior or one of their financial planners - who should hopefully know the options).

    And like I said previously, if one or another of the amounts are paid out as a lump sum - it is not the end of the world as your mum has plenty of years to contribute the monies back in.

    It is also a good reminder that binding death benefit nominations expire every 3 years - so if you are reading this go and check your own!

    Hopefully the above is useful, try your own 'investigations' and let me know if you need further assistance and I will give you someone who can help.

    Cheers
    SM
    (Kris)
    ***Please see disclaimer below***
     

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  6. K_veg

    K_veg Active Member

    Joined:
    24th Jan, 2011
    Posts:
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    Location:
    Milan, MI
    Thank you thank you! I'll give both funds a call. I didn't know about the $150k non-concessional contributions cap... brilliant.