A comprehensive guide to Superannuation Beneficiaries and Nominations
Superannuation Beneficiaries and Nominations – Did you know that you don’t own your superannuation assets?
Did you also know that the people you nominate in your Will doesn’t necessarily mean they will get any of your superannuation funds?
In fact, the trustee of your super fund is not even required to take your instructions held in your Will into consideration!
This means you need to nominate specific people and amounts in your superannuation beneficiaries if you want to ensure those people get your retirement savings after your death.
Your Will governs the distribution of your personal assets that you personally own like your house, car and bank accounts. But what a lot of people don’t realise is that you don’t own your super account personally, the funds are held in trust for you by the superannuation trustee.
Under Australian superannuation laws, if either a non-binding or no nomination is held on your super or pension fund then the super trustee decides who receives your super death benefit and in what portions.
Your Will governs the distribution of your superannuation death benefit only if your benefit is paid to your estate or your legal personal representative.
Your nominated legal personal representative will be the executor of your Will.
So if you want to nominate specific superannuation beneficiaries to receive your superannuation funds and life insurance then you need to make a valid death benefit nomination in your super or pension fund.
A key rule for making a valid death benefit nomination under superannuation law is that you must nominate one or more of your dependents.
Super law considers a person to be your dependent if at the time of your death they were:
- Your spouse or de facto spouse, including same gender person; or
- One of your children of any age; or
- A person who was in an interdependence relationship with you
You will be considered to be in an interdependence relationship if you and the other person live together, have a close personal relationship, and one or each of you provides the other with financial support, domestic support and personal care. For more information on dependents under super law, see the ATO website here.
For your death benefit nomination to be valid, you must make your Superannuation Beneficiaries in writing, sign and date it, and have it appropriately witnessed.
The people who witness the nomination must:
- Not be the person you are appointing or revoking as the beneficiary; and
- They must be over 18 years of age
The rest of this article will discuss the 5 types of pension nominations and superannuation beneficiaries that exist.
1. No nomination
If you don’t make a written death benefit nomination, the trustee of your super fund will decide who receives your death benefit. It may pay the death benefit to your estate, or it may use its discretion to decide which of your eligible beneficiaries receives the death benefit.
In recent years we have seen super trustees pay the death benefit to:
- The next of Kin first, as in the wife/husband or spouse; then
- Any children as per state probate laws; and
“Did You Know – If you nominate someone who is a non-dependant such as an ex-spouse, friend, or grandchild that are not financially dependent on you, when you die your nomination may be considered invalid!”
- In the absence of children or a spouse, paid to your estate; or
- In the absence of any next of Kin including children or a Will, it gets paid to the State Trustee
With no nomination made you are leaving the decision up to the super trustee to make as to who gets the money and this means the beneficiary selected by the trustee may not be the person you want.
2. Non-binding nomination
This is the most common type of superannuation beneficiary nomination. With this type of nomination the trustee of your super fund will look at the benefit nomination you make but they still have the final say over which of your beneficiaries receives your super and in what amounts.
In making this decision the the trustee will use their “discretion” to consider things such as your personal relationships and circumstances when you died, any new spouse or different children under your care and your financial situation when you made the nomination.
It can take a long time for the trustee to make a death benefit decision – in our past dealings that has been over 12 months and a recent claim we observed it took over 2 years! The reason this happens is because the trustee needs to investigate your personal circumstances to make a decision in the best interests of the survivors and in accordance with superannuation law.
Sadly disputes often arise when you fail to make a death benefit nomination or when the trustee uses its discretion to distribute your super death benefit that doesn’t quite go as expected.
3. Binding death benefit nomination (BDBN)
If you make a valid Binding Death Benefit Nomination (BDBN) then the trustee of your super fund must pay your superannuation beneficiaries to the people you nominate, in the proportions you list in your nomination form and a binding death benefit nomination almost always overrides the trustee’s normal discretion.
Binding death benefit nominations normally lapse after three years unless they are renewed. If you do not renew your nomination then the super trustee will consider you do not have a valid death benefit nomination in place so you are back to point 1 above which is no nomination.
If you are a member of an SMSF and want to make a BDBN you need to check your fund’s trust deed to see if it allows this type of benefit nomination as not all trust deeds permit them!
Having a Binding death benefit nomination will also speed up the process of paying out your super death benefit which is helpful where your beneficiaries need money quickly to pay for things such as a mortgage, school fees or even YOUR funeral.
Cascading Binding Death Benefit Nominations
A cascading nomination would be used in a situation where spouses nominate each other as their sole beneficiaries and they both die at the same time. If this were to happen then a deceased person cannot be a death benefit dependent so the nomination becomes invalid and the trustee then makes the decision.
4. Non-lapsing binding nominations
A non-lapsing superannuation beneficiary nomination normally never expires and remains in place until you cancel it or replace it with a new death benefit nomination.
These are a double-edged sword because they are bullet proof in requiring the super trustee to follow it, even if it is no longer appropriate. For example if your ex-partner is still listed as the beneficiary from 5 years ago and you have since moved on with a new relationship and children then your ex-wife is still entitled to your death benefit as you nominated 5 years ago.
So certain people like your new spouse or grown children (or new children) would completely miss out on any superannuation death benefits which is not a good thing!
So as the name suggests, a non-lapsing binding nomination never lapses and should be reviewed every 3 years and you need to be pro-active in doing this.
Non-lapsing binding nominations are not always available with every super fund so you need to check with your fund or the SMSF Trust Deed to see if this option is available.
5. Pension Fund Reversionary Nominations
If you receive a super pension or income stream from an allocated pension fund, the income stream will automatically revert to the “reversionary beneficiary” that you nominate which is usually your spouse.
With this type of death benefit nomination, the fund trustee is required to continue paying the super pension to your beneficiary provided the reversionary benefit nomination is valid. This can be a simple way to ensure your spouse receives your death benefit, as the trustee had no discretion to direct the benefit payment.
Generally a reversionary nomination can only be made when you start a super pension fund.
If you already have a pension fund in place and the reversionary nomination is no longer valid due to death or seperation, then you may need to stop and restart the pension to make the new reversionary.
Want to Know More?
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Next Section is Testamentary Trusts which are not bound by Superannuation laws