Who gets your Super when you die?
Who decides what happens to your superannuation savings when you die? You may think that you do, but that isn’t always the case. The ultimate decision may be made by someone you don’t even know – the trustee of your superannuation fund. Let’s look at how you can have greater control.
Binding Death Benefit Nominations
The most effective method to ensure the proper distribution of your superannuation death benefit is by establishing a binding death benefit nomination. The designated beneficiaries must be classified as "dependants," which includes a spouse, de facto spouse, child, financial dependant, or a legal personal representative (such as the executor or administrator of a deceased estate).
If the nomination is correctly signed, witnessed, and remains valid at the time of death, the trustees of the superannuation fund are obligated to pay the death benefit to the nominated beneficiaries.
Unlike wills, binding superannuation nominations are generally not subject to court overturning, offering a high level of certainty. However, the availability of binding nominations depends on the decision of each superannuation fund's trustees and may not be accessible to all individuals.
While some funds provide non-lapsing binding death benefit nominations, most are only valid for three years. Therefore, it is crucial to review your nomination periodically and ensure it is up-to-date.
Trustee's Discretion
The trustee holds a legal obligation to distribute the death benefit to the member's dependants, and in most cases, they will comply with the wishes of the deceased member. However, there is a possibility that the trustee may consider a broader range of dependants than the member intended, which could include a separated spouse.
In certain scenarios, the member's preferred beneficiary might not meet the legal definition of a dependant. This situation may arise with parents. In the absence of any dependants and a legal personal representative, the trustee has the discretion to allocate the benefit to a non-dependant.
While lump-sum death benefits received by dependants are tax-free, non-dependants may be subject to a tax rate ranging from zero to 30%, depending on the components of the superannuation payment.
Superannuation Payment and Superannuation Pensions
If the member has already retired and is receiving a superannuation pension, the situation differs slightly. It is common to nominate a surviving spouse as a reversionary beneficiary. This means that pension payments will continue to be made to the nominee until their death or until the funds are exhausted. If the reversionary beneficiary passes away, any remaining balance is then paid out as a lump sum death benefit, according to their nomination type.
Seek Professional Advice
Considering the increasing wealth held in superannuation and the nomination of beneficiaries, it is essential to address this within a comprehensive estate plan. This process includes taking into account the tax implications of superannuation death benefits when distributed to different types of beneficiaries.
If you have any questions about your beneficiaries, please do not hesitate to contact us.