If you pass away suddenly, your superannuation may not necessarily go to the people you want. Many people do not realise that under Australian law, the trustee of your super fund could actually have control over who gets your money when you die. So how do you make sure your super goes to the right people?
The law on super fund death benefits
Unlike the rest of your assets, your super fund is not covered in your will. This is because you don’t actually own your super fund – it is being held for you by a trustee. Legally, the trustee has responsibility for how your death benefit is awarded.
Most super funds allow you to nominate the person or people you want your death benefit to go to, and depending on the type of nominations you make, your super fund trustee may legally have to abide by your wishes.
However, if you fail to nominate anyone, the decision will be made by your trustee. While your trustee will usually award your death benefit to one or more of your dependants or to your estate, there are no guarantees of this. Even if they do, it is likely to take a lot longer for the beneficiaries to receive their money. It can also be the cause of fighting within your family, as some of your dependants may not receive what they think they deserve.
This is why it’s highly advisable to nominate the people you want your super money to go to in the event of your death.
Who can be a beneficiary of your super fund?
Legally, only your dependants can be named as beneficiaries of your super fund. Super death benefits recognise dependants as:
- A spouse
- Children of any age, including adopted children
- Anyone else who depends on you financially, or who you have a mutual financially dependant relationship with, such as a relative who lives with you.
You can’t nominate anyone who isn’t classed as a dependant to benefit from your super fund. The only way non-dependants can benefit is if you name them in your will and nominate your estate as the beneficiary of your super fund.
Nominating your estate means that your super fund becomes an asset when you die, and can be divided up according to your instructions in your will, by your personal legal representative.
How to nominate beneficiaries
The first step is to check that your super fund allows you to nominate beneficiaries. If so, there are two types of nomination you can make:
- A Binding Nomination. Under a binding nomination, your trustee legally has no say in where your super death benefit goes – they have to pay it to either the dependants you have nominated, or your estate. Some Binding nominations only last for three years, and your super fund should let you know when a binding nomination is about to expire. AMP has a Non Lapsing Binding Nomination which does not need to be renewed every 3 years. If you die without renewing it, it becomes a Non Binding nomination, and your death benefit will automatically be paid to your estate and divided up according to your Will.
- A Non-Binding Nomination.A non-binding nomination only acts as a guide to where your money should go – your trustee still has the final say, and is not legally obliged to abide by your wishes, although most will take them into account.
Can you change your super fund beneficiaries?
You should review your nominations every time your personal circumstances change, to make sure your money will actually go to the people you want. If you get married or have children, you’re likely to want to include your spouse and children as beneficiaries. Equally, if you get divorced, it’s advisable to remove your ex-spouse as a beneficiary – otherwise, if you die, they could benefit and your new family or other chosen dependants could lose out.
Do different super funds have different policies?
While most super funds will allow you to nominate your chosen beneficiaries, they can have different policies on this. Ultimately the decision about how your death benefit is paid, and who it is paid to, depends on the governing rules of your individual super fund. You should contact your fund to find out what their policies are.
Always a good idea to consult your Financial Adviser
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters.
AMP provides a NON LAPSING (does not need to be renewed every 3 years) BINDING (Trustees must pay) Beneficiary Nomination. Please contact me if you wish to check on your Super Policy – I can send you out the forms to update your records now.
Sandra Davidson 08 9321 2222 August 2018
NB: This article has not touched on the subject of tax, which may be applicable, if you nominate Non-Dependents.