It’s easy to assume that your Will would take care of your superannuation death benefit when you die. But that’s not the case – your super is dealt with separately from your Will.
Your super fund holds your super in ‘trust’. That means Superannuation Law and the Trust Deed for your fund dictate how your super is dealt with. When you pass away, the trustee of your super fund will direct what happens to your death benefit.
If you have left appropriate instructions, when you die the trustee will normally follow those. If you haven’t left appropriate instructions, the trustee will decide who to pay your death benefit to.
Who can you leave your superannuation death benefit to?
Your benefit can be paid to either:
– Your Dependant
Usually, your death benefit will be paid to your dependant or dependants.
A “Dependant” can include:
- your spouse (including a de facto spouse or same-sex partner),
- your children (including an adopted child, step child, or ex-nuptial child),
- any person who is financially dependent, and
- any person with whom you have an interdependency relationship (i.e. a close personal relationship between two people who live together, where one or both provides for the financial and domestic support and care of the other).
– Your Legal Personal Representative (i.e. your Estate)
You must complete a Death Benefit Nomination (DBN) to be sure that your death benefit will be handled under your Will (i.e. dealt with as part of your Estate). The DBN instructs that your benefit be paid to your Legal Personal Representative (i.e. your Estate).
Without a DBN, the trustee of your super fund might decide to have it treated as part of your Estate and distributed according to your Will, but they do not have to.
– Another person
Where a Dependant or Legal Personal Representative can’t be found, your death benefit will be paid to another person such as a non-dependant.
How do you nominate where your funds should go when you die?
Most super fund providers allow you to make a Death Benefit Nomination to direct who you want your super death benefit to be paid to.
Depending on your fund, there are generally three types of DBN:
1. Non-Binding Nomination
The trustee of your super fund will take your non-binding nomination into account, but has the final say on how your benefit is distributed.
This type of nomination does not expire. However, it can be updated at any stage, so keep this is mind as your personal circumstances change (e.g. marriage, divorce, children).
2. Binding (BDBN)
A valid binding nomination is a legally binding statement to the trustee of your super fund. Your benefit is paid according to your instructions.
You need to update your BDBN or it will expire after three years and become a non-binding nomination.
A non-lapsing nomination is a binding nomination (i.e. the trustee must pay your death benefit according to your instructions), which does not expire.
Not all superannuation providers offer this type of nomination.
Why make your Death Benefit Nomination binding?
When making your nomination you’ll have the chance to consider your broader estate planning goals. The trustee of your super fund may not be aware of your goals, so it can be a good idea to not only record your wishes, but to make your instructions binding.
- A Binding (or Non-lapsing) Death Benefit Nomination will give you peace of mind that your death benefit will be paid according to your wishes.
- Another – often overlooked – advantage is that your benefit can be paid out in a timely manner because the trustee of your fund is clear about your wishes. This can be a great relief to your dependants.
Of course, you should always discuss these types of decisions with a professional. The information in this article does not consider your specific situation.
If you would like to consider making a death benefit nomination to ensure consistency with your overall estate planning goals, make an appointment with a Synectic adviser today.