Nick Bruining: Quick check of superannuation death paperwork will keep loved ones afloat after you’re gone

The emotional stress of dealing with the sudden death of a loved one is often exacerbated when the financial consequences of the passing are brought home. There might be some relief when they realise their loved one’s superannuation could save the day. But that can quickly turn sour when they experience massive pay-out delays. In some cases, it can cost families thousands of dollars in extra costs. The Australian Financial Complaints Authority has reported a fourfold increase in complaints over pay-out delays, with some claims taking up to two years to finalise. And the financial impacts can be significant. While the immediate impact of a sudden death might be covered using savings and credit cards, eventually the big-picture issues need to be dealt with. Debts on mortgages and personal loans often run into several hundred thousand dollars, and any delay in receiving a superannuation death benefit means those debts that can no longer be serviced also can’t be paid out. Interest usually accrues and is added to the debt burden. A family with a $500,000 mortgage charging 6 per cent a year, for example, could be incurring interest charges of $2500 a month. A six-month delay means paying off the mortgage could be $15,000 more expensive than it might have been if the funds had been received sooner. While processing delays are often due to poor back-office resourcing combined with incorrect paperwork, super fund members can ensure delays are minimised by checking their super fund documentation is in order. Start by double-checking that your full name and date of birth as shown on your super fund statement exactly matches the name on your birth certificate. Sometimes when an employer adds a member to their fund, a middle name can be missing, misspelt or the date of birth can be wrong. Next is the death benefit nomination form. This is critical in making sure the money goes where it’s intended. Most funds these days have a non-lapsing binding death benefit nomination. The title is self-explanatory and it means that the fund is compelled to make the payment pursuant to your instructions, as long as the beneficiaries you nominate are legally classified as your dependents. Partners and children will tick that box but siblings, friends and parents probably don’t. When the beneficiary is a financially dependent partner or financially dependent children, having the super fund pay them directly makes sense. That’s because it passes to them completely tax free. Anyone else, and they’ll be up for 15 per cent tax on part of the benefit tax plus the Medicare levy — and, potentially, they’ll lose access to income-tested government benefits, like paid parental leave and family tax benefits Adult children, while legally classified as dependents, are almost always not financially dependent. Remember that a basic super fund balance can often be boosted by hundreds and thousands of dollars when a life insurance claim is added to the pool. If you intend to leave the super proceeds to others, the cleanest way is to nominate your “legal personal representative” on the death benefit nomination form. This is super-fund speak for your executor. In other words, the full proceeds of the super fund will be paid to your estate and dealt with by your executor according to the instructions contained in your will. There are almost no restrictions doing it this way. While there will still be tax to pay, because the estate as the beneficiary is not an individual, the 2 per cent Medicare levy is avoided. When the estate then distributes money to the beneficiaries, it doesn’t form part of their taxable income. If you are the person left to deal with a superannuation death benefit, carefully read the instructions provided on the super fund’s website. They almost certainly won’t deviate from what’s stated, no matter how inconvenient it might be. For example, if it says “post the original forms to us” that means email copies won’t be accepted and you’ll need to actually sign the forms rather than cut and paste a scanned image of your signature. These days it’s known as a form with a “wet signature”. Call the super fund’s deceased member department early in the process, be pleasant and try and get an individual name and direct number to call. There’s nothing worse than having to repeat the same story for the fifth time to a call centre team member. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association