By the end of your working life, your superannuation fund is likely to be one of the biggest (if not the biggest) assets you have. Because of this, it’s important that you carefully consider what you want to happen to the funds when you die. Selecting a nominated beneficiary, or beneficiaries, will ensure that your funds are distributed to those who financially depend on you, and those you care about most.
What Are Superannuation Death Benefits?
Superannuation death benefits are made up of the investments that have been accumulated throughout the course of your life and are inclusive of any Life Insurance proceeds that are paid out upon your death. Superannuation death benefit nominations are legally binding directives to a trustee of your superannuation fund.
The directives inform the trustee of how you would like your superannuation death benefits to be paid when you pass away – provided that your nominated beneficiaries are deemed as eligible to receive the benefits under superannuation legislation.
Nominating Your Spouse to Receive Your Superannuation Death Benefits
A common approach is to nominate your spouse as the beneficiary to receive your superannuation death benefits. When you nominate your spouse as your beneficiary, they are entitled to keep as much of the proceeds from your superannuation fund as possible (up to $1.6 million). Your spouse is then able to take advantage of the tax-effective environment and can draw upon the funds as they need. Any proceeds of your superannuation fund that exceed $1.6 million are to be paid out or placed back into taxable accumulation mode.
Nominating Your Estate as the Beneficiary of Your Superannuation Death Benefits
Instead of nominating your spouse to receive your superannuation death benefits, you can alternatively nominate your estate (your personal legal representative) to receive your superannuation death benefits in either a Testamentary Trust or a Superannuation Proceeds Trust. A Superannuation Proceeds Trust is a form of a Testamentary Trust that has been set up to receive superannuation death benefits solely for ‘tax law dependents’ as the primary beneficiaries.
Tax Law Dependents are usually classed as:
- The spouse of a deceased member
- Children of a deceased member under the age of 18
- Children of a deceased member over the age of 18 who were financially dependent on the member prior to their death
Binding and Non-Binding Superannuation Nominations
Your superannuation death benefit nominations can be either binding or non-binding.
Binding Superannuation Nominations
In a binding superannuation nomination, your trustee will need to ensure that your superannuation benefits are paid to your beneficiaries in accordance with your wishes. One advantage of binding superannuation nominations is that it provides you with certainty as to who will receive your super balance when you pass away.
A disadvantage to binding superannuation nominations is that relationships may change between when your nomination is submitted and when you pass away, meaning that those chosen to look after your superannuation benefits may no longer be part of your life.
Non-Binding Superannuation Nominations
A non-binding superannuation nomination is an individual who you choose to receive your superannuation death benefits. The nomination is not formally binding, and only acts as a guide for the trustee. At the end of the day, the trustee will have the power to pay the death benefit in any way that they decide; this may or may not align with your wishes.
An advantage of a non-binding superannuation nomination is that the trustee won’t be forced to pay benefits to your chosen beneficiaries, which is useful in the event that the relationship between you and your beneficiary has changed between the submission of the nomination and your death. A disadvantage to a non-binding nomination is that the person receiving your benefits is not clarified prior to you passing away.
It is important that your superannuation nominations are made to the correct entity in order to avoid any unnecessary tax implications as a result of death benefits being paid to a non-dependent for tax purposes – such as an adult or a financially dependent child.
Lapsing and Non-Lapsing Superannuation Nominations
Your superannuation death benefit nominations can be either lapsing or non-lapsing on the superannuation fund’s trustee.
Lapsing Superannuation Nominations
A lapsing superannuation nomination is only valid for a period of three years.
Non-Lapsing Superannuation Nominations
Unlike a lapsing superannuation nomination, a non-lapsing death benefit does not expire. It will remain in place indefinitely until a new binding or non-binding death benefit nomination is put in place.
Your superannuation nominations could be:
- Binding and Lapsing
- Binding and Non-Lapsing
- Non-Binding and Lapsing
- Non-Binding and Non-Lapsing
In order to obtain a greater level of clarity in your estate planning arrangements, we recommend discussing your current superannuation fund nominations and reviewing them with a professional. At BlueRock, we’re proud to offer a multidisciplinary approach to estate planning across a range of divisions.
For further support in protecting your wealth and preparing an estate plan that accurately reflects your wishes, get in touch with our Superannuation Specialists and Financial Planners for a free estate plan consultation, and download the FREE BlueRock Guide to Estate Planning now.