Superannuation Benefits and Estate Planning
The importance of nominating a beneficiary within superannuation is quite often overlooked. This is particularly concerning for people who have complicated family arrangements, such as previous marriages and children to different partners.
Failure to nominate a beneficiary within super can lead to a delay in payment, frustrating and lengthy disputes which can be costly to the potential beneficiaries and emotionally draining at a very difficult time.
Death Benefit Nominations
A death benefit nomination is a notice to the Trustee of a super fund requesting that the member's benefits be paid to their specified dependants, or to their Estate, upon their death.
Who can be nominated as a beneficiary?
Upon the death of a super fund member, the deceased member's benefits can only be paid to their Estate or any person classed as a dependant for Superannuation Industry (Supervision) (SIS) purposes at the time of death.
A SIS dependent includes:
- a child of any age
- a spouse (married or de facto) but not previous spouse
- any person who is financially dependent on the member
- any person who has a interdependency relationship with the member.
Types of Nominations
Depending on the particular super fund and what the Trust Deed allows, death benefit nominations may be either binding or non-binding on the Trustee.
Binding Nominations
When a binding nomination is made, the super fund Trustee must comply with the wishes of the deceased member, unless the nomination is invalid. The Trustee cannot use their own discretion about who will receive the benefit when it is paid. A binding nomination provides more certainty that the member's intentions are carried out after their death.
Generally, a binding nomation will lapse after three years and needs to be renewed.
Non-binding Nominations
A non-binding nomination is where the member of a super fund indicates to the Turstee of the fund who should receive their benefit upon their death. However, the Trustee is not bound by that nomination and can use their discretion when deciding to whom to pay the benefit.
Non-binding nominations do not normally need to be updated or renewed.
No Nomination
Super fund members may make no nomination at all. In this case, the Trustee may either pay their super death benefit to the member's Estate or make their own decision as to who should receive the benefit. No beneficiary nomination may delay the payment of the superannuation death benefit as the Trustee may need to write to potential beneficiaries before making a decision about who the benefit should be paid to.
When Circumstances Change
Regardless of whether a binding nomination or non-binding nomination is made, the nomination should be reviewed and updated when there is a change in the member's circustances, as the member's intentions may have changed or the nominated beneficiary may become invalid. Examples of this may be when a nominated beneficiary predeceases the member, or where a married person nominates their spouse to receive their super benefit, and subsequently gets divorced.
Making sure that your superannuation benefit is paid to the people that you intend to receive it is a very important consideration. We can assist you in ensuring that your beneficiary nominations are up to date and meet your current wishes. For further information or assistance please contact our office on (02) 9894 9155, or by email at taggart@taggartgroup.com.au.
Disclaimer: Article is an extract of an article by Crissy DeManuele issued in Professional Planner magazine December 2008, pages 34-35.