Family money: Susan Hely
A binding death nomination will ensure the right people benefit
It is worth taking the time to understand where your superannuation goes when you die, particularly as balances grow and because life insurance is often held through your fund.
You may think that your super is part of your estate and would be covered by your will. But this isn’t the case. Super is held in a trust and is not part of your personal wealth. “That’s why you need a separate document. You need a death benefit nomination. It’s like a little will to decide who gets your superannuation,” says Brian Hor, special counsel, superannuation and estate planning, at Townsends Lawyers.
Checking on who you have nominated as a beneficiary when you die is important and needs to be kept up to date. You can either have no one nominated, a non-binding nomination or a binding nomination.
“Binding death nomination is an issue that affects everyone these days,” says Hor.
The advantage of having a binding nomination is that it instructs your fund how to pay out superannuation if you die. As long as it is valid, your nomination is legally binding and the fund must follow your wishes. If you haven’t nominated who will receive your super or the nomination is out of date, the fund will make the decision.
If your circumstances change – for example, you have a new partner – you should consider changing or cancelling your earlier binding nomination so that your superannuation will be paid in line with your most up-to-date wishes.
If you are in an employer fund, typically you must update your binding death nomination every three years or it will lapse. “Three years comes around reasonably regularly,” says Hor.
This means that you might think you are up to date with the arrangements but you are not and it will be at the discretion of the trustees of the super fund to determine who gets your balance.
Remarkably, some super funds don’t offer binding death nominations, so if having one is important to you then it is worth moving funds. Plenty of funds offer binding death nominations and the forms can be found on their websites. Self-managed funds do not have lapsing nominations, which Hor says is a big attraction.
Who you can nominate
With a will you can decide who can inherit your home and other assets but with your super you are limited as to who can get your money directly. It goes to your spouse (including de facto and same sex) and your children (including step, adopted or ex-nuptial of any age), anyone financially dependent on you or an interdependent.
This means that if you have non-dependent grandchildren, they can’t directly receive your super, says Hor. If you want to leave it to someone apart from your spouse and children, you have to make sure that your will and your super work together, he says. “You need to make a binding nomination to your estate and then in your will give it to your grandchildren.”
You need to think of both your will and your binding nomination. “They have to go hand in hand,” says Hor.
Even if you don’t have a lot of personal wealth or super, you may have life and total and permanent disability (TPD) insurance worth hundreds of thousands of dollars. There have been legal cases involving young people who have died with little wealth but valuable insurance that is left to their family.
As the population ages, there is a danger that fund members will lose capacity and not be able to make a nomination. It could be because they have dementia or they have had a stroke or serious accident.
There are plenty of contested death benefits among families, particularly with the rise of blended households, second spouses and children from first and second marriages. “If people don’t get along, they will potentially take advantage of any little loophole,” says Hor.
It is another reason to have put your enduring power of attorney in place. It gives the trustee the power to act for the person in case they are unable to.