Superannuation Death Benefits – where will yours go?
This is a very sensitive topic and one that we don’t like to think about or plan for. It is estimated that around 50% of Australian’s die without having made a will.
A common mistake is that most of us believe any money we have saved in superannuation is part of our estate and will be dealt with under our will. Superannuation benefits do not automatically form part of a person’s estate.
Many superannuation funds allow their members to make a death benefit nomination. That is, the member may stipulate who they would like to receive their super on their passing.
Superannuation laws set out the classes of people who may receive a superannuation death benefit. These include:
- A spouse of the deceased, including de-facto and same-sex partners,
- Children of the deceased, including adult children,
- Anyone who had an interdependency relationship with the deceased, and
- The deceased’s legal personal representative.
The test of dependency occurs immediately before the death of the super fund member.
The majority of superannuation funds allow their members to nominate who they would like their superannuation to be paid to on their passing. Subject to certain conditions being satisfied, a death benefit nomination will be binding on the superannuation fund and they must pay the benefit in accordance with the nomination.
The common types of death benefit nominations that may be offered by superannuation funds include:
- Binding death benefit nomination – generally valid for three years
- Non-lapsing death benefit nomination – similar to a binding death benefit nomination, however, it does not expire after three years.
- Non-binding nomination – this is an expression of a wish. It is not binding on the super fund and therefore does not offer the certainty of the previous types of nomination.
- Reversionary nomination – where a member is receiving a pension from their super fund, they may nominate a dependant to continue to receive the pension on the member’s death. There are restrictions on super funds paying reversionary pensions to adult children of the deceased.
Importantly, not all super funds offer all these options.
Where a valid binding death benefit nomination is made, the superannuation benefits will pass directly to the nominated beneficiary and will not form part of the deceased member’s estate. This can be a very useful tool to provide certainty where there is the risk an estate may be contested.
However, a binding or non-lapsing death benefit nomination made in favour of the deceased’s legal personal representative means the benefit will form part of the estate and be dealt with under the terms of the will (or intestacy laws in the event of no will having been made).
If a nomination is found to be defective, or if no nomination has been made, the trustees of the super fund will determine to whom the death benefit will be paid. They may choose to pay the benefit to one or more dependants, or pay the benefit to the legal personal representative.
As super funds may offer a different combination of death benefit options, and may have set processes in place to deal with the payment of death benefits where a nomination has either not been made or is invalid, super fund members and their advisers need to be familiar with the options available and ensure that any death benefit nomination is correctly made and maintained.
Source: Peter Kelly | Centrepoint Alliance
