Taxation & Estate Planning

Payment of death benefits when couples die simultaneously

BY   |  FRIDAY, 13 MAY 2022    4:15PM

Many trustees and members of not only SMSFs, but also public offer superannuation funds, are interested in the payment of death benefits if they or their spouse were to die. This usually revolves around who is eligible to receive the death benefits, the effectiveness of reversionary pensions, non-reversionary pensions and the different types of death benefit nominations. Questions may also arise about the structure of the fund after the member's death and trustee issues, such as whether it is better to have a trustee consisting of individuals or a company. During many conversations with couples, the question, 'but what if we were to die at the same time' may be raised. The correct answer is that 'it just depends on the situation'.

Rights of survivorship

When paying death benefits from a superannuation fund, the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 require that benefits payable on the death of a member must be paid to the member's dependants, legal personal representative or both. However, when it comes to simultaneous or concurrent deaths the superannuation law is silent. The States have laws to determine who is deemed to have died first where a couple die simultaneously, or a survivor clause where assets will go to the spouse if he or she survives the deceased after a period.

Under the SIS Act, a dependant for superannuation purposes at the time of the member's death is their spouseincluding a de facto of the same or different sex, their children, anyone who was financially dependent upon them for support, or any person with whom they were in an interdependency relationship. For taxation purposes, the meaning of dependant is similar, however, adult children are usually excluded as 'tax dependants' unless they are disabled.

The governing rules of the superannuation fund, which are usually incorporated in the fund's trust, will set out who may receive death benefits. A member may nominate a dependant to receive any pension they were receiving at their death and may complete a binding death benefit nomination naming certain dependants and/or their legal personal representative to receive the relevant death benefits.

A member of an SMSF or small APRA fund (SAF) has the advantage of directing the trustee to pay benefits to the relevant people in many ways. For example, the trustee can be directed to pay pensions or lump sums, pay a particular amount to the member or their estate or even have certain fund assets transferred to particular beneficiaries.

However, this option is not available if death benefits are paid from a fund with more than six members. The reason is that in larger funds the law requires that any binding death benefit nomination nominates a percentage of the member's benefit to be distributed to their nominated dependants and/or the legal personal representative. When a person has nominated their legal personal representative to receive a death benefit, the executor of the member's estate can distribute the death benefit to dependants as provided in their Will.