Superannuation death nominations estate planning

Here are some surprising things that you may not know about your super.  Most surprising to many is that your Will doesn’t automatically determine who gets your super.  The trustee of the fund often makes this decision.

A recent newspaper report highlighted the instance of an inheritance that failed to land in the desired spot. The dad who was ill had confirmed his desire for his children to equally share his assets after he passed away. But owing to disputed instructions, the beneficiary was a ‘sometimes here, sometimes there’ girlfriend who had never really been his partner. 

This story reminded us of the very strict rules attached to super when it comes to your estate planning. They can be a bit of a minefield. So today we are sharing some very top level explanations about super and beneficiaries. And reminding everyone that you need to check your own situation, update it if and when necessary, and be absolutely clear that you have done all that is required to ensure that your wishes will be followed.

Super funds

With the exception of Self-Managed Super Funds which have additional complexities, the trustee of your super fund will be guided by one of two types of directions:

  • A binding death benefit nomination, or
  • a non-binding death benefit nomination

The Australian Government’s Moneysmart website is a good source of entry level information when it comes to super. Here’s what it has to say about beneficiaries:

Under superannuation law you must nominate a specific beneficiary who meets the superannuation legal definition of a valid dependant/s, or your Legal Personal Representative (LPR). Your ‘beneficiary’  receives your super when you die. A beneficiary can either be ‘binding’ or ‘non-binding’, depending on the rules of your super fund.

A binding nomination is typically only valid for three years, so it’s important to make sure that your nominations are up to date, especially if your circumstances have changed. For example, if you’ve married, divorced or have had children, you might want to change your nominated beneficiaries.

Check who your nominated beneficiary is. If you need to update it, contact your super fund. 

Which type is better for you?

The main difference between the two common types of nominations is the enforceability. If a binding death benefit nomination is current, the trustee is obliged to follow that set of instructions. If it is not renewed after three years, it becomes a lapsed or non-binding nomination. Because every individual has a different set of circumstances when it comes to their super savings, their family and others in their lives, it’s important to seek professional estate planning advice.

Keeping your nomination up to date

This is crucial. If you have a binding nomination it’s up to you to ensure that it is current. This is actually a good thing as, if your circumstances have changed, you may wish to review your previous nominated beneficiaries and decide if they are still appropriate for your new situation. If not, it is quite straightforward to update your fund you wish to commit to the current nomination. 

Any other traps?

It is important that you deal directly with your fund when managing binding or non-binding nominations. That means using the funds own documents to do so, ensuring they are uploaded or delivered successfully and insisting upon confirmation of this information. That means you can rest assured that your wishes are correctly recorded.

Consolidating your super

Reviewing your nominations is also a good reminder to review whether you should further consolidate your super. It’s very easy to have more than one fund if you have or have had multiple jobs. Often your employer can put you in a default fund if you haven’t let them know your fund details. . Checking how many funds you have is useful. Holding two or more concurrently often means overpaying fees and maybe automatic insurance deductions. It’s your super, so make sure you’re not wasting any of it!

Anything else?

Yes! It is important that those who have moved to the ‘pension’ or spending phase of super have a clear idea as to what will happen to their retirement income stream, often an account based pension, should they pass away before their partner. Your fund will be able to confirm this information. Also, some funds will have a life insurance component. Knowing how this works in the event of your death is important for you and your family.

Next steps

Understanding the top level rules of binding nominations and possible tax impacts for your beneficiaries is both sensible and a courtesy to those who may be left behind. Dealing with grief is difficult enough without experiencing financial uncertainty as well. 

Can you answer these six questions?

  1. I know I have either a binding death benefits nomination or a non-binding one in place.
  2. I know which I have.
  3. If a binding death benefits nomination, I know when it is due to expire.
  4. I know what will happen with my retirement income stream or annuity when I die.
  5. If in a Self-Managed super Fund, I have left clear legal instructions about my super
  6. I have shared all of this information with relevant family members

Retirement Essentials does not provide estate planning recommendations, but can help you understand how superannuation works in a deceased estate scenario and the things to think about or be aware of.

It may help you to start by talking with one of our experienced advisers in an Understanding Super general consultation.

Alternatively, booking a Understanding Super strategy consultation, will enable the advisers to explain how superannuation works and impacts on Centrelink for the remaining spouse. Using  the Retirement Forecaster can show the effect on the financial situation of the remaining spouse.

Every family has a story…  

Most of us realise that we can’t ‘rule from the grave’. But we’ve all heard of cases where those who are less than deserving wind up with an inheritance. Has this happened to anyone you know? If so, are there any lessons the rest of us might learn from this?