For a parent the most difficult and frightening happening to consider is what will happen to your children in the event of your untimely death. But for parents in New South Wales, there are a number of avenues to financially protect your children in the event that something tragic happens to you.

If the parent of the child has elected to be a member of a Superannuation plan, then the child and other dependents can make application to receive benefits. This benefit is payable under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Initially, there are two possible ways that monies might be available to dependents of the deceased;

  1. From the balance of a superannuation account that is being held by the employer
  2. In insurance amount purchased by the deceased

If there are monies available, the funds can be distributed to any of the following dependent persons;

  • A spouse
  • A minor child (under the age of 18 years)
  • A child who was still a dependent up to the age of 25
  • A child with a disability
  • A person who was interdependent upon the deceased even if they were not family. This can include persons who reside together or have a financial dependence upon one another
  • A person who the deceased has specifically nominated to receive the benefits

When a benefits is due to be paid the law requires that it be distributed as soon as practicable. As there is no particular definition for practicable, common sense must rule and the employer and/or holder of the fund must make the distribution in a reasonable and timely manner, so as to prevent unnecessary hardship to the dependent.

In the event that the monies are being paid out to a child that is a minor, the parent can elect to set up a trust for the child with a trustee. Under these circumstances the benefit can be paid into the trust for the benefit of the child. The trust will contain the terms defining which circumstances allow for monies to be withdrawn for the care and maintenance of the minor child.

The benefit can be paid in three forms; 1) as a lump sum payment, 2) as a stream income or 3) a combination of both. The election of how the benefit is to be paid is determined by the terms of the fund.

It must be remembered that the benefit can incur tax implications in some situations. The beneficiaries’ status determines if the monies will not be taxable. If the beneficiary is a;

  1. Spouse or De Facto Spouse
  2. Former spouse or de facto spouse
  3. Child under the age of 18
  4. Any person who was financially dependent upon the deceased
  5. A person who qualifies as having been interdependent upon the deceased

However, adult children, or nominated recipients, who are financially independent will be required to pay a proportional share of tax on the benefit.

In addition, it is possible for a person to elect to leave their superannuation to a non-dependent or non-family member. It is important to remember that if you have been nominated by the deceased to receive such benefit in some cases circumstances can override the election. A binding election is only enforceable for up to three years after the signing of the nomination. Persons choosing this option need to also update their Will indicating that the superannuation funds are to be paid in accordance with their election. It is important that if the benefactor wants to continue the binding nomination, that it be renewed as required.

Furthermore, there are a few life changing circumstances that can automatically change a nominated beneficiary, those changes include;

  1. Marriage
  2. Divorce
  3. Death of the nominated beneficiary.

In each of these cases it is important for the benefactor to take the necessary steps to ensure that the intended beneficiary is either changed or reinforced to match their intentions.