Give your super a Will
While a Will outlines how you would like your hard-earned assets distributed, it doesn’t automatically include your super. That’s because, unlike directly owned property or shares, super doesn’t form part of your estate. And while the super fund trustee will distribute it in accordance with super law and the trust deed, their final decision may not be what you had in mind.
That’s why it’s important to make a Will for your super too, and having a binding death benefit nomination is just the way to do this.
A binding death benefit nomination is one of a variety of nominations (outlined in the table below) which legally allows you to direct the super fund’s trustee as to whom is to receive your super benefit when you die, provided they meet certain eligibility criteria.
|Type of nomination||Description||Positives||Limitations|
|No nomination||The trustee will generally pay the benefit to your dependants or to your estate.||No need to renew nominations.||There is a chance your super benefits could go to someone you didn’t intend them to go to.|
|Non-binding nomination||You can tell the trustee whom you want your super benefits to go to. It will be considered by the trustee, but is not binding.||The trustee can still exercise discretion if your situation has changed.||The trustee will make the decision on your behalf.|
|Binding nomination||The trustee must pay benefits to the dependants and in the proportions set out.||The trustee must pay benefits in accordance with your wishes.||The definition of an eligible dependant can be restricted for different super funds. The nomination must be renewed every three years to remain valid.|
Who can you nominate as a beneficiary?
There are rules around who can receive a superannuation benefit – it’s not solely at your discretion. The beneficiary must be a ‘dependant’.
A dependant includes:
- a spouse (including defacto or same-sex)
- children of any age, including step-children and adopted children
- someone who is financially dependent on you
- someone in an interdependency relationship with you
- a legal personal representative.
Two people have an interdependency relationship if:
- they have a close personal relationship, and
- they live together, and
- one or each of them provides the other with financial support, and
- one or each of them provides the other with domestic support and personal care.
It is important to appreciate that all four of the interdependency conditions must be met.
|Case study 1|
Sam is legally married but separated from his wife who he has two children with. He is in a de facto relationship with his new partner who has no children and who does not rely on him financially.
Sam has an unfortunate skiing accident and dies suddenly. Sam’s Will deals with his estate assets and sets out that his house should go to his current partner. However, he has not made a valid nomination on his super. This leaves the trustee of Sam’s superannuation fund with complete discretion to distribute the payment. After reviewing Sam’s circumstances the trustee decides to pay the death benefit equally between his legal wife and his new partner.
Unfortunately, Sam’s preference would have been for his legal wife to receive the full death benefit. If he had made a binding death nomination the trustee would have been clear on his intention and paid the death benefit as per his wishes.
|Case study 2|
Jim is single and loves spending time with his nieces and nephews. He also dedicates a lot of his free time helping his elderly parents. In the event of his death, Jim wants to make sure that his super is split so that his parents get half, while the other half is paid to his two brothers.
As neither his parents nor brothers are financially dependent on him, they don’t qualify as ‘death benefits dependants’. For this reason Jim can’t make a death benefits nomination directly to them. However, Jim is able to make a binding death benefit nomination to his ‘legal personal representative’ so his super is included as part of his estate and dealt with under the terms of his Will.
Through his Will, Jim could consider establishing a testamentary trust for his nieces and nephews so that the super funds are directed to them, with potential tax benefits.
Given the complexity with arranging his affairs, Jim elects to see an estate planning specialist and drafts a new Will which gives his beneficiaries the most flexibility in determining how they deal with his super benefits through his estate.
What are the benefits of a binding death benefit nomination?
One of the greatest benefits of signing a binding death benefit nomination is peace of mind. This is especially true if there are competing claims on your super fund, such as claimants from previous marriages.
Also, as it avoids the probate process, nominating a beneficiary greatly enhances the speed and ease of the benefits being paid and ensures a continuity of lifestyle for their dependents.
Of course there’s more to know about binding nominations – including tax implications for your beneficiaries, and that’s why before you take any action we recommend you speak to your financial adviser.
However, once you’ve decided to make a binding death nomination, all you need to do is fill in a Binding death benefit nomination form.