For most Australians approaching retirement age, superannuation is a significant asset, and for many it is second in value only to their home. Clients are often surprised to learn that their superannuation does not automatically form part of their deceased estate and any directions in their Will may have no effect on super.
When someone dies, the balance of his or her superannuation account is generally paid as a death benefit. The member can elect who is to receive that death benefit. Nominations can be made and changed, provided the member has capacity.
Only certain people are eligible as death beneficiaries, including spouse/partner, children and step-children, and legal personal representatives (the executor of the estate). Nominating the legal personal representative will result in the super proceeds being paid to the estate where they are dealt with by your Will.
For a nomination to take effect it must be valid at the time of death. If there is no nomination in place or if the nomination is valid then it is up to the trustee of the super fund to decide when and to whom benefits are paid. This can lead to significant unintended consequences, additional delay and expense, and stress to the deceased’s member’s family.
Nominating your super to go directly to beneficiaries is more certain and usually faster than directing super to be paid to beneficiaries via your estate. It also has the benefit of separating, and therefore protecting super from claims against the estate.
On the other, there are also potential advantages to superannuation being channelled through the estate. Where intended recipients are not valid death beneficiaries or are minor children, or where there are insufficient estate assets to discharge a mortgage, bringing super into the estate may be desirable. Significant tax savings may also be possible if the superannuation is distributed as an estate asset rather than paid directly.
Depending on the particular governing rules of the super fund, death benefit nominations may be either lapsing or non-lapsing. A lapsing nomination must be renewed or amended at least every three years. A non-lapsing nomination is valid until changed. Most retail and industry fund nominations are lapsing.
A binding nomination requires the super fund to pay a member’s proceeds to the nominated beneficiary. The nomination must be carried out, and the fund has no discretion to consider competing claims.
A non-binding nomination means the super fund has discretion to assess the circumstances and determine who the most appropriate recipient is.
Whether to select binding or non-binding and lapsing/non-lapsing nominations will depend on your own circumstances, and the correct decision is crucial to ensuring your intentions are carried out and your super protected.
Professional advice is vital
Superannuation succession can be a confusing and complex area of accounting and law. You should seek professional advice before making any decisions about how your super should pass in the event of your death. Our experienced team of lawyers and accountants can collaboratively guide you to make the right decisions. Feel free to give us a call on 07 5444 1022 to make an appointment to find out how we can help you look out for your family.
Scott Lorback practices exclusively in succession law and enjoys working closely with clients to tailor solutions to their specific estate planning needs and to help them navigate the often confusing path of deceased estate administration.