Who gets your superannuation when you die? A guide to death benefit nominations.
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This is Rob Laurie and welcome to retirement and money where we aim to improve the quality of your retirement. First of all, very, very sorry for the long wait between episodes. I got super busy in my main job being a financial advisor looking after clients, starting in about August, meetings, catching up on client reviews and making lots of changes. Lots of people want to invest money, a lot of people
and changing circumstances selling investment properties, lots and lots and lots on the go. But anyway, we’re back. So in this episode, I wanted to talk about beneficiary nominations on superannuation. And that’s to set the groundwork for the next episode, where we’re going to talk about Superannuation death benefit taxation.
Okay, so what is a Superannuation death benefit nomination? So, as you may or may not be aware, Superannuation is not an estate asset. So if you do a will, and you say, leave all my assets to my wife, and when they pass away, leave them to my children in equal amounts. Seems like it’s taking care of your estate planning. Unfortunately, estate planning is not that simple. So you may have a will and the will can divide up assets like that, and that’s fine. However, your Superannuation is not an estate asset. And on death, it does not automatically flow to the estate of the deceased.
I think it’s probably a time to give my legal advice. Warning, I’m not qualified to give legal advice. This is not intended to be legal advice. We’re simply discussing, the Superannuation death benefit nominations, seek legal advice from a qualified estate planning lawyer.
Okay, so the trustee of the super fund will generally pay a death benefit in accordance with the governing rules of the fund and relevant laws. Now, a binding death benefit nomination is a way to override this trustee discretion. So I’ll put simply a binding death benefit nomination is a legally binding nomination that allows you to advise the trustee who was responsible, sorry, who was to receive your superannuation benefit and event of your death. In order for the nomination to be binding, it must be considered valid. One, the requirements of validity is that only dependents can be nominated. So over the years, I have seen some death benefit nomination forms, sent them out to clients and they come back and they’ve done some interesting things, I’ve drawn boxes, and added on somebody who cannot be a valid nomination. Not usually it’s like younger people. And because they don’t have any dependents.
They nominate their parents. So that might be you know, somebody that’s 25 years old, and they say, oh, I want to go to my parents. So there’s no box there that says apparently can be a spouse, children of any age, any persons financially dependent on the member any persons in inter dependency relationship with a member or a legal personal representative,
which is basically your estate, which gives you directed by your will. So what they would do is draw a box and put you know, their parents name and because it can’t take one of those boxes, I’ll draw another one, I say parents and ticket. And that’s a death benefit nomination has to go back a long time when we used to look after corporate super funds and that sort of stuff. But it’s not considered a valid nomination.
Okay, so if you make a non binding deathbed nomination or don’t make a death benefit nomination at all, the trustee of the Super Fund may use their discretion to pay in accordance with either the non binding nomination or make a payment to the deceased legal personal representative executor of the deceased estate for distribution according to the instructions in the deceased well, so if you don’t make a nomination, it can end up going to the estate and they will.
But it may take a whole lot longer to get there.
The whole point of a binding nomination is to provide certainty. It’s one of the biggest benefits you can receive from having the binding death benefit nomination is peace of mind for having that certainty. If something happens. I know this is what’s going to happen, not leaving it up to the trustees discretion.
Usually the trustee would do what’s expected but not always I have heard of some examples where it hasn’t gone as expected. Now it’s particularly important to have a binding death benefit nomination. In the case you have multiple beneficiaries or blended families where things can get a little bit complicated, and the trustee may not make the right decision if there’s not a binding nomination in place.
Okay, now the benefit
is the ease and speed in which benefits can be paid. So if the beneficiary needs quick access to your benefit, because there’s going to be expenses, funerals, things along those lines I need to pay for sometimes people who’ve got enough cash flow to bear sort those things out from savings. Sometimes they need the fund’s project. To make a valid nomination, you must follow the following procedures. So nomination must be made to the trustee in writing, which is why there’s always a written form for a death benefit nomination for superannuation funds. And it must be signed by the member in the presence of two witnesses over 18 years of age, who are not nominated as beneficiaries, and must contain the signed witness declaration and be sent to the trustee.
Most of the time, these need to be sent by post, I think some farms are accepting digital ones out a little bit at their sort of discretion.
Now a common error people can make when filling out a death benefit nomination form is they sign it, and then they take it to somebody get witnessed their neighbours for example. And it might be the next day and the neighbours put the date one day after the date that they’ve signed and the dates don’t match. It’s not about the nomination, I’ve got to do it again.
Okay, once you’ve made the nomination, it’ll be valid for three years once the date it was signed. Now some funds also offer a non lapsing binding nomination as well, that’s come around in the last few years. So it’s dependent on the superannuation trust deed. Now you can renew, change, update or revoke a nomination at any time. If the nomination is valid, the trustee must follow it. If it’s not valid, it becomes up to the discretion of the trustee, to why it’s important to make sure you have a valid nomination.
Now, if you have circumstances on the go like you have not yet obtained a divorce, for example, the nomination remains valid and binds the trustee unless the nomination has been amended. So if you’re in a separation period, for example, divorce hasn’t been finalised, you haven’t got a button death benefit nomination, guess who’s likely to receive the funds.
So sometimes a by nomination may not be appropriate. As binding nominations require a formal nomination much like a will and must be renewed every three years or whenever circumstances change. So there may not be suitable for everyone if certainly already exists. For example, there’s only one sole dependent that binding death benefit may be of little value. Additionally, unless the person you nominate receive your super death benefit is dependent or your legal personal representative, upon death, a binding death benefit nomination will not be valid. When a person does not meet the requirements, alternative estate planning arrangements will need to be made. So what about the non-binding nomination? So if someone makes a non by nomination, the trustee has the discretion to protect the interests of your beneficiaries if your circumstances change. So for example, one of your beneficiaries is bankrupt, the trustee can take this into account and avoid putting your super benefit into the hands of creditors instead of your beneficiaries. So that’s another disadvantage there potentially. That pretty much wraps up what beneficiary nominations are. Once again, seek legal advice regarding your estate planning and your estate planning lawyer will be able to make recommendations for your circumstances regarding what may be more appropriate. And then you can implement or have your financial advisor implement these recommendations. Thanks for listening and I hope you enjoyed this episode. And remember, you can’t go back and change the beginning, but you can start where you are and change the ending. retirement money is brought to you by Wealth Factory. Wealth Factory provides specialist financial advice to traders and business owners to ensure their retirement dreams are delivered. For more information go to wealth factory.com.au wealth factory is an authorised repurpose of lifespan financial planning limited AFSL 229892.
The purpose of this podcast is to provide factual information only. It is not intended to be financial advice. However, any advice provided is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Please speak to your financial advisor before making any financial decisions.