Death and taxes are inevitable. Here’s how retirees can minimise the latter

Most retired couples live on an account-based pension from their super fund, often supplemented by a part age pension. This usually works well until one of them dies, but at that point, if careful preparation has not been put in place, serious problems can emerge.

A common scenario is a couple who receive a part age pension and have assets of about $800,000 outside the family home. If they fall into the trap of leaving all their assets to each other, when one dies, the surviving partner – usually a widow – finds themselves over the single-person assets test cut-off point, and they lose their age pension as well as their partner.

If careful preparation has not been put in place, serious problems can emerge when a loved one dies.Credit: Dominic Lorrimer

That’s easily avoided by making sure the will is drawn in such a way that the total assets left to the survivor don’t take them over the single-person threshold. There are many ways this may be achieved, including by adding children as binding beneficiaries of the super account or income stream.

This is a complex area, with varied taxation impacts depending on who superannuation assets are transferred to, so ensure you seek advice.

Another big issue is delays that occur in superannuation when a person dies. Most couples nominate their partner as the reversionary beneficiary or binding death benefit nominee, which means they take over the pension or receive the benefits directly when the main account holder dies. But this does not happen automatically.

First you need a certified death certificate, then probate. Next, you or your solicitor must apply to the fund for the pension to be changed from the deceased to yourself as surviving partner. You may also need to provide certified copies of the will.

The paperwork is not normally a problem if you have a self-managed superannuation fund, but most people have their superannuation with one of the large funds, and, like all large institutions, dealing with them can be time-consuming. In extreme cases, the transfer process can take years, which may leave you in real trouble if your income stream is suddenly reduced to a trickle.

If there is a reversionary nomination, the beneficiary will need to prove their identity for the account to revert to them and for income payments to continue. As part of this process, they will have to provide proof that they are an eligible reversionary (for example, a marriage certificate) and a death certificate for the deceased.

These are legal requirements the fund has to follow. Any income payments that have been paused are then paid to the reversionary as part of the account transfer process.

If there is no reversionary nomination or binding death benefit nomination, the trustee needs to do due diligence on who the death benefit should be paid to, which can take additional time and does not necessarily result in the best outcome for the family group. So it’s important to consider these aspects and document them appropriately in advance of something we all share – our mortality.

My key message here is that pension payments will stop as soon as your death is advised to the superannuation fund, and will not continue unless you have a reversionary nomination (for an account-based pension) or a spouse nomination (for a lifetime pension).

To avoid any potential delays, it’s a good idea for executors to get onto the paperwork quickly. Turnaround times for death certificates vary for each state, but two to four weeks is common. It can be longer if the death occurred overseas. Probate can also vary, depending upon the workload of the courts and the efficiency of the solicitor.

To head off these challenges before they start, it’s a good idea to find out exactly what documentation your fund will need if one of you dies, then make sure it’s readily available.

Furthermore, all retirees should keep money in cash outside super that will be available immediately if needed. A joint account is ideal for this, as the survivor will retain access throughout. Estate planning is complex, so it’s imperative to seek advice that considers your individual circumstances and optimises your outcomes.

A well-considered estate plan should minimise end taxes, ensure income streams continue efficiently, and maximise support from the government in the event of a loved one’s death.

Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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