For many people, superannuation forms a significant part of their estate. Depending on age, contributions and investment returns, your superannuation may be a considerable amount.
Unless you're nearing retirement, chances are high your super is simply ticking away in the background while you're busy living life. Beyond adding a couple of beneficiaries to the form, you probably haven't given much thought to what would happen to that money if you were to die.
Here's what most people don't realise. Unlike other assets, superannuation is held in trust by the superannuation fund and not owned by the account holder. This means if you were to die your balance would not automatically form part of your estate and as such does not automatically get paid to the people or person in the way you outline in your will.
The non-binding nomination you make when you open a super account or get online to update your account from time to time is like a helpful suggestion for the trustee of the superannuation fund.
The trustee will take it into account, but they ultimately have the power to decide where your super goes and they might not land where you hoped, intended, or imagined.
How does a super fund decide where my super will go?
Superannuation funds will usually pay death benefits to one or more of the deceased's dependants (or legal representative). For the purpose of superannuation, dependants are defined as:
- A spouse or de facto (including same-sex partners)
- Children (including stepchildren, adopted children, and childern born after the death)
- People the deceased had an interdependent relationship with (lived together and provided financial, domestic or care support to each other)
- People who depended on the deceased financially (for bills, rent or maintenance, or having shared financial commitments)
If you want control over your super after your death, a valid and current Binding Death Benefit Nomination (BDBN) is one fo the sharpest tools you can have in your estate planning tool box.
How do I ensure my super goes to the beneficiaries of my choice?
Like any financial or estate matter, it's important to get advice around how a BDBN would work for your personal circumstances.
The estate-planning equivalent of a laser-guided missile, a BDBN tells your super fund exactly who should get your super (and any attached life insurance) when you're no longer around.
Provided it's valid at the time of your death, a BDBN naming specific beneficiaries must be followed by the trustee of the super fund, who will be obliged to pay the death benefit to those beneficiaries or into the estate to be distributed in accordance with the will.
The benefits of going binding
Certainty for beneficiaries: They'll know exactly what you wanted, and your super fund will have to honour it.
Reduced disputes: A clear, valid binding nomination leaves less room for arguments (and the expensive court action that follows).
Faster payouts: Trustees can release funds quicker when there's no decision-making process to wade through.
The downsides of binding death benefit nominations
Like any financial or estate matters you should seek advice around whether a BDBN is suitable for your personal circumstances.
Expiry dates: Many BDBNs expire after three years unless renewed (some industry funds allow non-lapsing nominations but it's rare). You will be required to complete and resubmit a BDBN to ensure it's valid. This is a good opportunity to review the suitability of your beneficiaries according to your most up to date superannuation balance and financial needs.
Eligibility rules: You can't just leave your super to anyone; eligible beneficiaries include your dependants (spouse, children, financial dependants) or your legal personal representative (this is your executor not your death lawyer!).
Life changes: Marriages, divorce, births, falling-outs; if your BDBN doesn't keep pace, the wrong person could get the lot.
"Set and Forget" is a trap
Life changes. Your relationships change. Your financial situation changes. A BDBN will keep happily pointing your superin the same direction until it expires or you update it.
We all like a set-and-forget plan. Sign the form once and you're done, but a BDBN insits you think about that pile of super you like ignoring at least once every three years.
If you had $500,000 sitting in a bank account, you're unlikely to never look at it, think about it, or make decisions about what you want to happen to it. But that's what people do with their super.
Completing a BDBN forces you to complete and resubmit the paperwork every few years, which ensures your wishes are still valid and the beneficiaries of your estate are still relevant (and alive).
About six months before your BDBN is due for resubmission, you'll receive an email from your superfund asking you to resubmit a form.
This is a great opportunity to reach out and make an appointment to review or update your will (if required). or consider if your nominated beneficiaries are still right for your personal and financial circumstances.
ADDITIONAL RESOURCES:
Estate Management Resources - Claiming Superannuation After Death
The information included in this article is general in nature. Please seek professional guidance from your accountant or an estate lawyer before making decisions around your superannuation.