by Jolene Seaton, partner MBA Lawyers

Arranging your superannuation death benefit ensures your family benefitsSince superannuation became mandatory in Australia 1992 a vast amount of wealth has been invested in superannuation funds, both externally and self-managed funds.

In fact, superannuation is often the most valuable asset of a person at the time of their death and depending on the specific circumstances, that wealth can be transferred to a beneficiary either by lump sum, pension or annuity.

Externally managed superannuation funds

Every superannuation fund that is externally controlled, for example Australian Super or HostPlus, has its own process for how a member can nominate who their superannuation death benefits are to be paid to. The process is usually simple and involves the member having to submit a written, signed and dated form to the trustee of the superannuation fund nominating their beneficiary.

Self-managed superannuation funds

For self-managed superannuation funds, the terms of the trust deed will specify the requirements for a binding death benefit nomination. Sometimes the deed will not permit a binding death benefit nomination to be made. If a binding nomination has not been made, then the control and benefits within the self-managed fund will usually pass to the deceased’s executor to be dealt with according to the terms of the Will or left to the discretion of the executor.

There are 2 different types of death benefit nominations that can be made:

  • a binding nomination or
  • a non-binding nomination

They are both separate from, and override, the terms of the Will.

Binding nominations

Where a binding nomination is made, the trustee of the superannuation fund must pay the benefit to the nominated beneficiary. It is possible to nominate one or more beneficiaries, or a first choice beneficiary along with a substitute beneficiary. Binding death nominations can be advantageous in so far as they remove the discretion of the trustee, but the removal of flexibility may also result in more income tax being paid if the nominated beneficiary is not a dependent of the fund member, such as an independent adult child.

A binding nomination can be either lapsing (automatically lapses after 3 years) or non-lapsing (remains in force unless revoked by the fund member). Binding death nominations are not automatically revoked by separation or divorce.

Non-binding nominations

For non-binding nominations, the trustee is required to consider the nomination but is not required to follow it. Effectively a non-binding nomination is an expression of wishes. For example, the trustee may elect to pay the death benefit to one or more dependents of the deceased rather than the person that the deceased listed on their non-binding nomination.

It is possible for the super fund member to nominate their estate as the beneficiary of their death benefit. Where this happens, the benefit is then distributed in accordance with the terms of the member’s Will, or according to intestacy rules if there is no valid Will.

Making a superannuation death benefit nomination is a crucial part of any estate plan. For tailored advice in relation to estate planning, contact Joelene Seaton of MBA Lawyers Estate Planning team.