- Published on 19 Feb 2023
- - What is Financial Planning?, Investment & Financial Advice
Have you ever wondered who has the final say in what happens to your superannuation savings when you pass away? It may surprise you to learn that it's not always you. In fact, the trustee of your superannuation fund may ultimately make the decision on how your money is distributed. But there are ways to gain more control over this process.
Your Estate
Your estate consists of assets that you personally own and can be distributed according to your will. This can include bank accounts, shares, managed funds, real estate, and other personal belongings, such as cars and boats. However, assets held in companies or trusts do not form part of your estate.
Your Super
Superannuation, on the other hand, is not owned by you, but rather by the super fund trustees who hold it in trust for your benefit. If you pass away, superannuation legislation requires the trustees to pay the money to your dependants. This includes your spouse, children, someone financially dependent on you, or someone in an interdependent relationship with you.
The legislation is designed to allow the trustees to quickly pay out the super upon receiving a death certificate. In most cases, this is quicker than finalising your estate. However, family disputes can cause delays, even with a superannuation payment.
Binding Death Benefit Nominations
To direct the payment of your superannuation death benefit, the most certain way is by making a binding death benefit nomination. The nominated beneficiaries must be your dependants or a legal personal representative (i.e. the executor or administrator of a deceased estate). If the nomination is properly signed, witnessed, and current at the time of your death, the trustees of the superannuation fund must pay the death benefit to the nominated beneficiaries.
Unlike wills, valid binding superannuation nominations are unlikely to be overturned by a court, providing great certainty. However, it is up to the trustees of each superannuation fund to decide whether or not to allow binding nominations, so they are not available to everyone. Most binding nominations are only valid for three years, so it's important to keep yours up-to-date.
Non-Lapsing Binding Death Benefit Nominations
A non-lapsing death benefit nomination is a type of binding nomination for a superannuation fund that does not expire after a set period, unlike regular binding nominations which are usually valid for three years. This means that the nominated beneficiaries will receive the superannuation death benefit upon the member's death, even if the nomination has not been updated recently. Not all superannuation funds offer non-lapsing death benefit nominations, so it's important to check with the fund and ensure that the nomination remains valid and up-to-date. Non-lapsing death benefit nominations provide an additional level of certainty and control over how your superannuation death benefit will be distributed after your passing.
Superannuation Pensions and Reversionary Beneficiaries
If you are already drawing a superannuation pension, it's common to nominate your surviving spouse as a reversionary beneficiary.
A reversionary beneficiary is nominated by the member to receive their pension payments upon their death. If a member of a superannuation fund has nominated their spouse as a reversionary beneficiary, the spouse will continue to receive the pension payments until their own death, or until the funds run out. The advantage of nominating a reversionary beneficiary is that it provides continuity of income to the surviving spouse, without the need for the superannuation fund to be paid out as a lump sum death benefit. If the reversionary beneficiary also passes away, any remaining balance of the pension account will then be paid out as a lump sum death benefit, in accordance with the type of nomination they have made. It's important to note that not all superannuation funds offer reversionary beneficiary nominations, so it's essential to check with the fund and ensure that the nomination remains valid and up-to-date.
Trustee’s Discretion
The trustee is legally obligated to pay a death benefit to your dependants, and in most cases, the benefits will be paid in line with your wishes. However, the trustee may recognize a wider range of dependants than you may have wanted, such as a separated spouse. In the absence of dependants and a legal personal representative, the trustee may exercise discretion and pay the benefit to a non-dependant. Non-dependants may be subject to varying tax rates on the components of the superannuation payment.
An Up To Date Will is Critical
To ensure your wishes are considered, it's essential to have an up-to-date will, and you may be able to give direct instructions to the trustee through a binding nomination or similar facility. Telling your beneficiaries what you intend may also help them prepare for the outcome and avoid surprises during a difficult time.
Why not take the next step and talk to a qualified financial planner specialising in estate planning?
LifeTime Financial Group are specialist (holding appropriate accreditations) advisors who are ideally positioned to assist you in planning your estate needs.
If you would like to discuss your concerns about a recession or your wider financial planning needs, why not call us today on 03 9596-7733? There is no cost or obligation for our initial conversation/meeting.
LifeTime Financial Group. A leading privately-owned Melbourne-based Financial Planning practice with no ties to any financial institution.