Super: Vita Palestrant
Fund members should check that their super goes to the right beneficiary
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.