Su­per: Vita Palestrant

Fund mem­bers should check that their su­per goes to the right ben­e­fi­ciary

Money Magazine Australia - - CONTENTS - Vita Palestrant was edi­tor of the Money sec­tion of The Syd­ney Morn­ing Her­ald and The Age. She has worked on ma­jor news­pa­pers over­seas.

Spare a thought about who gets your su­per if you die. Most of us as­sume it will go to the peo­ple we’ve nom­i­nated as ben­e­fi­cia­ries. But, as with ev­ery­thing else in su­per, it’s much more com­pli­cated than that.

First, you need to un­der­stand who is and who isn’t a valid ben­e­fi­ciary. Un­der su­per law only “de­pen­dants” are el­i­gi­ble for the death ben­e­fit. This in­cludes a spouse, de facto part­ner, same-sex part­ner, chil­dren of any age, any­one who is fi­nan­cially de­pen­dent on you, or any­one you have an in­ter­de­pen­dency re­la­tion­ship with.

It of­ten comes as a sur­prise to fund mem­bers, es­pe­cially younger ones, who are still sin­gle, that sib­lings and par­ents are in­valid nom­i­na­tions. But more on this later.

The leg­is­la­tion re­quires the fund trustee to pay the ben­e­fit – made up of the ac­count balance and life in­sur­ance – di­rectly to the “de­pen­dant”. Su­per is a non-es­tate as­set and there­fore not dealt with via your will un­less you specif­i­cally di­rect the ben­e­fit to your es­tate.

Colin Lewis, head of strate­gic ad­vice at Fitz­patricks Pri­vate Wealth, says there are three types of death ben­e­fit nom­i­na­tion.

The first is a non-bind­ing no­ti­fi­ca­tion or guide to the trustee stat­ing who you’d like your ben­e­fit to go to but ul­ti­mately it is at the trustee’s dis­cre­tion.

The sec­ond is a bind­ing nom­i­na­tion, which is a for­mal writ­ten direc­tive that has to be wit­nessed by two peo­ple. “A lot of peo­ple want con­trol over who gets their ben­e­fit and don’t want to leave it to the trustee’s dis­cre­tion,” says Lewis.

“If you’ve ex­e­cuted a bind­ing nom­i­na­tion cor­rectly and nom­i­nated a valid ben­e­fi­ciary, then the trustee has to pay the ben­e­fit to that ben­e­fi­ciary. But it only has a three­year shelf life, which means it lapses and be­comes in­valid if you don’t re­new it.”

Even then you need to keep on top of it. Take the case of a bind­ing nom­i­na­tion that is made to a spouse. Say the re­la­tion­ship breaks down, the cou­ple sep­a­rate but are not legally di­vorced, the mem­ber es­tab­lishes an­other re­la­tion­ship then passes away.

“The fact that you are not legally di­vorced means it re­mains a valid nom­i­na­tion, so in the event of death your ex gets the ben­e­fit, not your new part­ner. That’s an un­in­tended con­se­quence where you think you’ve done the right thing but if you don’t keep it up to date it can end up go­ing to the wrong per­son.

“Whereas if the trustee had dis­cre­tion, the trustee would have to look at it at the time of death to de­ter­mine who is the rel­a­tive per­son. And un­der trustee dis­cre­tion, the de facto spouse would most prob­a­bly have landed up get­ting the ben­e­fit,” says Lewis.

The third type of nom­i­na­tion is a non-laps­ing bind­ing nom­i­na­tion. “If you’ve got a laps­ing bind­ing ben­e­fit nom­i­na­tion and you lose ca­pac­ity, lose your fac­ulty, at the end of the three years it be­comes in­valid, it goes back to the trustee’s dis­cre­tion. But if you have a non-laps­ing bind­ing nom­i­na­tion it will still be rel­e­vant.”

But let’s re­turn to the prob­lem of young mem­bers nom­i­nat­ing sib­lings and par­ents. While their balance may be low, they of­ten have $200,000 to $300,000 in life cover, which means there’s a lot at stake.

“Un­for­tu­nately, a lot of young mem­bers go, ‘I’ll leave it to Mum and Dad or a brother or sis­ter.’ Who else are they go­ing to leave it to? Be­cause they are not a de­pen­dant un­der su­per law, that nom­i­na­tion is not worth the pa­per it’s writ­ten on,” says Lewis.

“You can’t leave it to them di­rectly from your su­per. In that case you would nom­i­nate your le­gal per­sonal rep­re­sen­ta­tive so the death ben­e­fit is paid into your es­tate and dis­trib­uted in ac­cor­dance with your will.”

The le­gal rep­re­sen­ta­tive can be any­body who has the ca­pac­ity to act on your be­half in the event of your death or if you lose ca­pac­ity. “It could be a sib­ling, a par­ent, a good friend or a lawyer. That per­son will gen­er­ally be­come the ex­ecu­tor of your es­tate.”

Lewis says peo­ple should check what kind of nom­i­na­tion they have, en­sure it is valid and up to date, and have a will. That way you won’t leave a mess be­hind for your loved ones.

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