Why your superannuation does not pass under your Will!
What happens to your superannuation when you die?
Superannuation is not an estate asset; on death it does not automatically flow to the estate of the deceased. The trustee of the super fund will generally pay a death benefit in accordance with the governing rules of the fund and relevant law. Payments may be made to people or in portions that you do not want it to be paid to.
This means that your Will does not typically deal with your superannuation monies. Accordingly, when you create a Will, you should also look at your superannuation and determine if you need a superannuation nomination.
What can you set up to control your superannuation and where it goes after death?
With superannuation, there are basically three options to control superannuation after death being:
- non binding nomination
- binding nomination
- no nomination
Here is an overview of each option:
Non Binding Nomination Superannuation
A non binding nomination is the most common nomination. It is offered by most superannuation funds when the fund is set up and is offered through the website as well.
A non binding nomination is basically a wish and is not binding on the super fund trustee. The super fund trustee may choose to ignore the nomination and pay the money to the most eligible person or people at super law. This will typically be spouses, partners, children, financial dependents or domestic dependents. In our experience, these payments rarely suit the family left behind after death and, based on conversations with family left behind, often do not match the deceased persons intentions.
We strongly suggest that you review your nominations. This will usually appear on your account statement or super fund profile.
Binding nomination Superannuation
Put simply, a binding death benefit nomination is a legally binding nomination that allows you to advise the trustee who is to receive your superannuation benefit in the event of your death. In order for a nomination to be binding, it must be ‘valid’. One of the requirements of validity is that only ‘dependants’ can be nominated. Depending on your circumstances, however, you can nominate one dependant or a number of dependants. For the purposes of superannuation law, a dependant includes:
- a spouse (including de facto, opposite and same-sex)
- children of any age (including adopted or ex-nuptial)
- any person(s) financially dependent on the member
- any person(s) in an interdependency relationship with the member (applicable since 1 July 2004)
- a legal personal representative (LPR).
Some superannuation funds will offer non-lapsing nominations but this will depend on the super fund. You should seek advice about this. If your binding nominations lapses (most lapsing nominations expire after 3 years) then your binding nomination will become a non binding nomination.
Having no nomination leaves your superannuation completely open to your trustee to determine how it is to be paid after your pass away. As suggested above, this typically does not suit those left behind or you. In our experience, the trustee rarely pays heed to the wishes of family and determines what they think best. Contesting the trustees wishes can be expensive and very time consuming and is not often taken up.
How to make a valid binding death benefit superannuation nomination
To make a valid nomination you must follow the procedures explained below.
The nomination must:
- be made to the trustee in writing and clearly set out the proportion of the benefit to be paid to each person nominated. It may also include the type of benefit payment (such as a lump sum and/or an income stream)
- be signed by the member in the presence of two witnesses over 18 years of age and who are not nominated as beneficiaries
- contain a signed witness declaration
- be sent to the trustee (a nomination will not be valid until it’s received by the trustee).
Once you have made the nomination, it will be valid for three years from the date it was signed, or non-lapsing depending on the superannuation trust deed options. You can renew, change, update or revoke a nomination at any time.
If the nomination is valid, the trustee must follow it, even if your circumstances have changed. For example, if you nominate your spouse and you separate, but have not yet obtained a divorce, the nomination remains valid and binds the trustee unless the nomination has been amended, revoked or has expired.
When binding superannuation nominations may not be appropriate
As binding nominations require a formal nomination, much like a Will, and must be renewed every three years, or whenever your circumstances change, they may not be suitable for everyone. If certainty already exists, for example, where there is a sole dependant, a binding death nomination may be of little value.
Additionally, unless the person you nominate to receive your super death benefit is a dependant or your LPR at the date of your death, a binding death benefit nomination will not be valid. When a person does not meet these requirements, alternative estate planning arrangements will need to be made.
The role of binding superannuation nominations in estate planning
One of the biggest benefits you receive from having a binding death benefit nomination in place is peace of mind. This is especially the case if you have multiple beneficiaries (eg from previous marriages) who may have a claim on your death benefit.
In this case, you can nominate with reasonable certainty who you wish to receive your death benefit or, if being paid to more than one beneficiary, who receives what proportion.
Ease and speed
Another advantage of a binding death benefit nomination is the ease and speed with which a death benefit can be paid.
If your beneficiary needs quick access to your benefit, a binding death benefit nomination may allow a more timely distribution of your assets and your beneficiary won’t have to wait for the trustee or the deceased estate to determine the distribution.
Small super fund balances
Even small super fund balances can become quite large on death due to any attached life insurance being available on death. So an account balance of $30,000 may, on death, combine with life insurance to be a few hundred thousand. Therefore, investigating this and setting up nominations is important.
Can you do a binding superannuation nomination yourself?
Yes you can. You need to fill out the correct form for your super fund and you also need to fill it out correctly. Your super fund may even help you to do this.
However, it can be very helpful to get some advice around who to pay it to (remembering that you can only pay it to eligible people) and in what quantity as part of your wider estate plan and your Will.
Remember, if your binding nomination is invalid, the directions you give on the document may not be valid. Most super funds do not guarantee that the binding nomination will be valid if they accept it.
How we can help you with superannuation nominations
Swanwick Murray Roche can help simplify your estate planning in a simple appointment. We look at your entire estate, your family situation and, based on our experience of what other people go through, we give you advice to suit your family circumstances.
If you have any questions or concerns about the following, please give us a call and we would be happy to assist:
- drafting a will
- preparing superannuation nominations
- preparing advance health directives
- preparing enduring power of attorneys
- preparing estate succession plans
- preparing business succession plans and documents
- reviewing your current arrangements to ensure that they are up to date with current requirements
Call Swanwick Murray Roche on 07 4931 1888 and have a chat about how we can assist you.
This page is general information only. Do not rely on anything on this page when making a decision. You must seek specific legal advice prior to adopting any of the general information here.