Do you have a plan for who will receive your super if something happens to you?
For many Australians, superannuation is their greatest asset outside the family home.
But do you have a plan for who will receive your super if something happens to you?
The laws around super death benefits are complex, with strict rules about who can receive these benefits. So, it’s crucial to plan ahead.
One approach that can help provide certainty is making a binding death benefit nomination, but even then, there are some important things to consider.
What happens to your superannuation when you die?
Upon your death, your super and any life insurance held in your fund must be paid out to a beneficiary, according to super law and your fund’s trust deed.
Importantly, the rules for who receives superannuation are different from other assets, like property and shares held outside of superannuation, and superannuation does not automatically form part of your estate. Even if you have written instructions in your will about your wishes, the rules about beneficiaries in super law take precedence.
That’s why choosing a beneficiary is such an important decision.
Who can you nominate as your beneficiary?
The trustee of your super fund can usually only pay a death benefit to one of your “dependants”, as defined by super law.
This includes:
- Your spouse – both married and de facto partners (unmarried but living together as a couple).
- Your children – including adopted children, stepchildren, children of your spouse or other legally recognised children.
- Your ‘interdependents’ – someone you live with in a close personal relationship, where one or both of you provide financial, domestic and personal care support to the other.
- Your legal personal representative – the executor of your will or administrator of your estate. They are not considered a dependant but can still be nominated as a beneficiary.
The dependency rules are complex and very important in the context of administrating death benefits, and there are also tax implications.
That’s why it’s a good idea to seek advice from us or estates lawyer about your personal circumstances.
What happens if you don’t nominate a beneficiary?
If you don’t nominate a beneficiary with your super fund, the fund’s trustee will decide who receives your death benefit based on superannuation laws and the fund’s trust deed.
This could result in your super being given to someone you might not have intended.
In these situations, the trustee will first try to pay the benefit to your dependants and/or a legal personal representative. If you have neither, the trustee will pay the death benefit to another person they determine.
How binding death benefit nominations can help
To avoid unintended consequences, you can lodge a binding death benefit nomination with your super fund.
A binding nomination is legally ‘binding’ on the super fund’s trustee. As long as your nomination is valid at the date of your death, the trustee will generally be bound to follow your instructions.
Binding nominations usually expire after three years. But some super funds offer non-lapsing binding nominations which don’t expire (but which you can still change or revoke if you want to at any time).
You can also make a binding death benefit nomination if you have a self-managed super fund (SMSF), providing it’s allowed in the trust deed.
What to know about non-binding death benefit nominations
Many funds also allow members to record non-binding nominations.
If you have a non-binding nomination, the trustee will take your preferences into account when deciding how to distribute your benefit in accordance with superannuation law.
However, it doesn’t guarantee that your death benefit will be paid exactly according to your wishes.
For example, the trustee may change the proportions or may include other dependants not named in your nomination.
Why it’s important to regularly review your super beneficiaries
If you have a binding death benefit nomination, it’s important to regularly review it to ensure it reflects your current wishes and circumstances.
A good rule of thumb is to check your nomination of beneficiaries whenever your personal circumstances change.
For example, if you get married, register a relationship, get divorced, have children, change an interdependency relationship, start a new interdependency relationship, or if one of your nominated beneficiaries dies.
Death benefit nominations are a complex topic, so it’s a good idea to seek professional advice.
For more information, including how to make a binding death benefit nomination, give us a call.
Source: Vanguard
This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing
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