A recent article published by ABC News has revealed a worrying statistic: Super Consumers Australia has found that more than 6.5 million Australians do not have a nominated beneficiary on their superannuation policies. Even more concerning, one in four survey participants admitted they didn’t know whether their nomination was binding or non-binding. This is an important distinction that may determine who receives your superannuation after your death.
A widespread lack of awareness as to how superannuation nominations operate may be leaving Australians vulnerable to having their superannuation distributed in a way they never intended.
What Happens to Super When You Die?
There is a common misconception that, when you die, your superannuation will be distributed in accordance with your Will, but this is not always the case. Your superannuation will not automatically form part of your estate unless you nominate your legal personal representative (LPR) as the beneficiary. Nominating your LPR means you are leaving your superannuation to the nominated Executor of your Will to distribute the funds in accordance with your Will.
The trustee of your super fund will decide who receives your death benefit if you do not make a valid binding nomination.
Valid Nominations
For a nomination to be valid, it must list either a dependent or your Legal Personal Representative. For the purposes of superannuation, a dependent includes your spouse and child as well as anyone financially dependent on you or someone you are in an interdependent financial relationship with. With blended families, it is important to review the requirements for your own super fund as you may be allowed to nominate stepchildren as valid nominations with some funds.
You can split your super among multiple beneficiaries as long as they’re all valid beneficiaries and the allocation adds up to 100%. It is also important to consider that different beneficiaries have varying tax implications and you should speak with an accountant to ensure your wishes don’t come with unintended financial consequences.
Binding vs Non-Binding Nominations
- There are two main types of beneficiary nominations:
A Binding Nomination ensures that your super is distributed according to your instructions so long as you have nominated a valid beneficiary. It usually must be made using a paper form submitted to you fund which has been signed in the presence of two independent witnesses. Most binding nominations expire every three years, requiring individuals to regularly update and resubmit their instructions. The super fund is not required to remind you when this nomination has expired so it is important to regularly review your nominated beneficiaries. When a binding nomination expires, it typically reverts to a non-binding nomination. - A Non-Binding Nomination allows you to express a wish as to who you want to nominate but be aware that the super fund is not legally required to adhere to this. These nominations can typically be made online and are usually non-lapsing. Although easier to put in place, they leave the final decision to the super fund trustee, which can result in disputes or unwanted outcomes. There can also be extensive delays while the trustee decides how the funds are to be paid, which may cause further emotional or financial stress for your already grieving family.
Superannuation is often one of the largest assets people leave behind, yet it is far too frequently overlooked when considering your estate planning. Don’t just set and forget your beneficiary nominations – check!
For advice regarding the implications of your beneficiary nominations and ensuring your super is paid in accordance with your wishes, please contact our office to speak with our highly experienced Estate Planning team.
