Most people regard the money in their superannuation fund as ‘theirs’, meaning they think the amount is automatically part of their overall estate to be passed on to their beneficiaries in their will once they die.
In fact, this is not the case. Because superannuation funds are trusts; any distribution of the money in your super fund is governed by the rules of the trust and at the discretion of its trustee as permitted under the laws on superannuation in Australia. Your super trustee is not obliged to take your will into account.
This is a significant issue when it comes to estate planning because for most people, their superannuation benefit is now one of their largest assets, particularly if it includes amounts to be paid out from life insurance and/or total and permanent disability (TPD) policies held within the fund.
The way to control who receives the benefit of your superannuation is to make a Binding Death Benefit Nomination (BDBN). BDBNs can either be lapsing (expires after a certain period of time, requiring you to renew or change it regularly) or non-lapsing (remains in place unless you specifically change, amend or revoke it or it becomes invalid). As several significant life events or changes in your personal circumstances may affect the validity of your nomination, you must regularly review your nomination, even if it is non-lapsing, to ensure that it remains valid and continues to reflect your wishes.
It’s also possible to make a non-binding death benefit nomination or preferred beneficiary nomination whereby you indicate as to who you’d like to receive the benefit of your super, but the trustee retains ultimate discretion over who are the most appropriate recipients. A non-binding nomination is like a guide that the trustee will have regard to but they are not bound to follow.
In addition to a binding and non-binding nomination, it’s also possible to make a reversionary beneficiary nomination if you have an income account with your super fund. This means your reversionary beneficiary can continue to receive ongoing pension payments from your super fund. As there are special conditions regarding this type of nomination, as well as potential implications which may affect your Centrelink entitlements and tax matters, it’s advisable to consult with an expert accountant or financial adviser before making this type of nomination.
It’s also advisable to consult with a specialist on the legal implications of making a death nomination generally (either binding or non-binding) concerning your super, such as Big Law Pty Ltd. We can ensure that your BDBN is valid when you make the nomination, that your beneficiaries are eligible, and that any other issues which might affect the payment of your super to those you wish to receive it are addressed.
Who can be the subject of a BDN?
The laws on superannuation in Australia are quite definite about who may receive a person’s superannuation benefit if they die. Specifically, any beneficiary must be a dependant of the superannuation fund member, or the deceased member’s ‘legal personal representative’. A legal personal representative is not your lawyer, but the person appointed to act as your executor under the terms of your will or, in the absence of a valid will, the administrator of your estate.
The legislation defines dependants as:
- the member’s spouse or de facto partner who lives with the member on a genuine domestic basis as a couple;
- any child of the member, whether a biological child, stepchild or adopted child;
- any other person who was in an ‘interdependency relationship’ with the member at the time they died, which means both of them lived together, had a close personal relationship, and one or each of them provided the other with financial support and domestic support and personal care.
Should this criteria regarding eligible dependants or legal personal representatives not be followed, the super fund is not obliged to act on your BDBN as it will not be valid.
Making a BDBN
You make a BDBN by providing written notice to the trustee of your super fund, stating who you nominate as an eligible beneficiary or beneficiaries of your super benefit in the case of your death. It is usually the case your signing of this notice, will require witnessing by two independent witnesses.
While your superannuation does not automatically become part of your estate, in the case you nominate your legal personal representative as a beneficiary, then your super benefit can become part of the assets of your estate to be distributed under the terms of your will.
In cases where people fail to make a valid will, the super benefit is distributed according to the laws of intestacy. Likewise, if you do not make a BDBN, it’s left to the trustee of the super fund to decide either to pay your death benefit to your estate or make a choice as to which of your eligible beneficiaries receive the death benefit.
The benefits of expert advice
Despite the details about BDBNs outlined above, it’s important to understand that not all super funds offer the option of making one. Additionally, not all funds offer a choice between making a lapsing or non-lapsing nomination or even a non-binding nomination.
If you find the issue of superannuation confusing, or need more detail on how best to make sure your super benefit goes to those you want it to go to after your death, contact me today.
We have advised clients for more than 25 years on the best way to set up their super fund nominations for the benefit of their loved ones once they pass, including how to ensure your super fund becomes an asset within your estate so that it can be passed on to your beneficiaries in your will, if appropriate.