Legal Information Around Your Superannuation + Binding Death Benefit Nomination
Written by: Karlene Wightman l Legal Team
Superannuation, commonly known and referred to as ‘super’ is money that you put aside by your employer over the entirety of your working life with the goal that it is for you to live on when you retire from work and start to enjoy your golden years.
Super is extremely important to each individual because the more you save and contribute to your superannuation fund over your working lifetime, the more money you will have for your retirement.
A question that we are often asked is what happens to our superannuation when you pass away, with the assumption that it forms part of your estate. This isn’t the case – unless you have specifically nominated your superannuation to form part of your estate. We wanted to shed some light on these different situations so that you are aware of your options and if you need to make any changes to ensure your super goes to whom you wish if and when you are to pass away.
Does Superannuation Form Part of Your Estate Plan?
The short answer is no – super does not form part of your estate and yes, you should seek legal advice and guidance.
An important element of superannuation that tends to surprise people is that superannuation, whether in an industry fund or a self-managed super fund, does not form part of your Estate unless you direct it to.
Not a lot of people are aware that superannuation is a non-estate asset. This means that it will not automatically be dealt with, through your Will if you were to pass away. It could be your wish that your partner receives your superannuation, and you could state in your Will that this is what you want to happen, but without a valid beneficiary nomination on your superannuation fund, the Trustee of the fund may grant your money elsewhere.
This is where our legal advice helps you and we take the time to go through your options and the possible outcomes of your superannuation balance if it is not directed to be dealt with in your estate and how it may affect those that you are leaving behind.
Part of our Legal Services is To Ensure You’re Nominating a Beneficiary or Beneficiaries
Legislation governs that, if nominating individuals, they must be classified as a dependent according to Superannuation Law. A dependent is:
- Your spouse (including a de facto spouse);
- Your children (including an adult child, an adopted child or a step-child);
- Anyone who is financially dependent on you at the time of your death; or
- Anyone with whom you have an interdependency relationship and one or more provides the other with financial support domestic support and personal care with, at the time of your death
If you do not have anyone who falls within the above categories, you need to nominate your Legal Personal Representative. This means that your superannuation benefits will be paid to your Estate and your Will then governs the division of this asset.
Common mistakes that we see when clients are nominating beneficiaries for their superannuation funds are those of parents being nominated, brothers or sisters or other relatives. However, there is no interdependent relationship so the nominee is considered invalid.
A nomination can have “if, then” clauses to allow you to nominate a person should certain beneficiaries have already passed away – such as “100% distribution to my spouse, for example, “If I survive my spouse, or if I divorce from my current spouse, then distribute to my children on an equal proportionate basis.”
If you do not make any nomination, you are not unlike others and you are certainly not breaking the law. The surviving Trustees simply have full discretion to distribute the funds to the Estate or any Dependent that they choose. As important as it is to ensure that you have nominations made, it is equally important to ensure that it is a valid nomination/s.
Legal Issues of Binding -VS- Non-Binding Nominations
When nominating a person or persons to receive your superannuation, there are generally two nominations that can be completed: a binding death benefit nomination or a non-binding nomination.
- Non-Binding Nomination
It is important to understand that if you choose to make a non-binding nomination, then who you choose to receive your superannuation is simply an expression of your wishes. The trustee of the superannuation fund (whether an industry fund or a self-managed super fund) has the discretion to pay the superannuation to whomever they choose, as long as their choice is within the rules noted above.
When determining who to pay your superannuation to, the trustee generally asks for details of all of your dependents (such as a spouse, children and step-children) and will give all these people the right to decide whether they wish to claim any of the superannuation. It is then up to the trustee how to divide the proceeds.
- Binding Death Benefit Nomination
A binding death benefit nomination means that the trustee of the superannuation fund has no discretion as to who to pay the proceeds to, as long as you have nominated within the rules. A binding nomination can be further distinguished into two further categories: binding non-lapsing or lapsing death benefits.
- A non-lapsing death benefit nomination means that once you have nominated, you do not need to complete another nomination unless you wish to change it. We would always recommend that you review your estate planning every couple of years at least, but with this nomination, you could rest assured that your wishes will be followed.
- A binding but lapsing nomination means that the nomination is only valid for three years. After this time, for the nomination to continue to be binding you need to complete another nomination form. If you overlook this, your nomination will automatically change to a non-binding nomination and will be subject to the rules listed above.
Self-Managed Super Funds
The rules are generally the same for self-managed super funds, however, the trust deed governs what type of nomination you can complete. It is extremely important for us to always review the trust deed and the terms of the trust in order for us to give you appropriate advice.
Canny Legal + Tailored Legal Advice
Canny Legal is able to help you when it comes to your superannuation and ensuring that it forms part of your estate – if this is your wish. As well as ensuring that your superannuation beneficiaries are legally binding. One thing that superannuation funds do not have to do is notify you, the superfund holder, if your beneficiaries are invalid.
We take the time to sit with you and ensure that your wishes are clear and that your legal documents reflect this.
Get in touch today to make sure that your wishes are carried out how you want them to be.
