Tackling the thorny question of death benefits

My wife and I are thinking about death benefits in estate planning for our selfmanaged super fund (SMSF).

I am 64 years of age in pension phase and have maxed out the pension transfer balance cap.

My wife, who is still working, will also exceed her cap. We have a son who is still in high school.

We are wondering whether or not a binding or non-binding death nomination is at all necessary, given that my wife and son are the only dependants.

I have also learned that when one of us passes (during pension phase) the death benefit must either be taken out of that person’s fund as a lump sum or as an income stream.

If my wife has already reached her pension balance cap, is there any possibility that the funds can remain in super, and the death benefit drawn as an income stream or must it be drawn out in its entirety as a lump sum?

If we make our dependant son a member of our SMSF we would hope to be able to deposit part of any death benefit into his super fund.

Can you please assist with some advice about this sort of situation.

I believe a binding death nomination for superannuation and accountbased pension investments is the only way to go.

It reduces any possible uncertainty as to who the beneficiary of your portfolio will be in the event of death.

You will need to make sure that your SMSF trust deed allows you to make this nomination.

In the event of your death, and with your wife nominated as the beneficiary, she will have the option to continue with the account-based pension (and its regular income) or to cash out (the benefit cannot be rolled back into an accumulation fund in this instance).

Retaining the accountbased pension means that she would most certainly exceed the transfer balance cap, and therefore cashing out is potentially her only option.

Your son could receive the death benefit (if he is nominated as the beneficiary) if he is under 25 and a financial dependant. The death benefit must be paid as a pension in this situation.

At 25, he would need to commute (cash out) the income stream, except in certain circumstances of disability.

This is a highly complex area – I’ve barely scratched the surface with this answer.

I would strongly recommend that you seek professional financial and legal advice to ensure that you do not make any errors with your estate planning. Mistakes in these circumstances could be very costly!

Brenton is a director and an authorised representative of Goldsborough Financial Services Limited. His advice should be considered as an opinion. Readers should consider engaging their own personal financial adviser. Questions and answers may have been edited for length.