Death and Superannuation
Superannuation is becoming one of the largest (if not the largest) asset a person holds at the time of their death. Given your superannuation must be paid out upon your death, it is important to consider how this money will be dealt with as part of your broader estate plan.
Contrary to popular belief, your superannuation is not automatically covered by your will. Instead most super funds allow you to nominate a person or persons to be paid your super in the event of your death.
Who can I nominate?
You are only legally able nominate a certain class of people to receive your super upon your death. The class of people include:
- Your spouse
- Your child or children
- Any person with whom you have an interdependency relationship (discussed further below)
- Your legal personal representative (also known as the executor under your will)
- Any combination of the above
People commonly make the mistake of nominating a person or persons who do not come within the above class. For example, a person may have nominated a parent, brother or sister to receive their super. As you can see, parents and siblings will not fall within the class of people outlined above unless they are considered to be in an interdependent relationship with you.
Interdependent Relationships
An interdependent relationship is often difficult to prove and is defined broadly as 2 people that:
- Have a close personal relationship
- Live together
- One of each of them provide the other with financial support; and
- one of each of them provide the other with domestic support
Some super funds have specific rules around who your super can be paid to and in what order. For example, some funds automatically pay your super to your spouse upon your death unless a nomination is made otherwise. This can provide complications if you are going through or have been through a family law separation as you super may automatically be paid to your ex-spouse. Therefore, it is important to check your super fund’s rules.
Nominations
There are different types of nominations you can make including:
Binding vs non-binding
A binding nomination means that the super fund must pay your super in accordance with your nomination. A non-binding nomination means that the super fund will take into account your nomination but still has discretion to pay your super to any person or persons within the class of people outlined above. A binding nomination provides certainty whereas a non-binding nomination provides flexibility, but both can be effective depending on what you want to achieve with your estate plan.
Lapsing vs non-lapsing
A lapsing nomination means that the nomination will expire after a certain amount of time and you will have to renew your nomination. For most super funds the expiry period is 3 years from the date the nomination is made. A non-lapsing nomination means the nomination will continue to be valid indefinitely until it is amended or revoked. A lapsing nomination can provide a good reminder to review your nomination providing you are notified of its expiry. However there is a risk that you may be left without a nomination if you do not review and update the nomination. As such a non-lapsing nomination provides greater certainty.
There are also other factors to consider in relation to your superannuation and death which go beyond the scope of this blog. Some of those factors include the tax consequences on the payment of your super upon your death and the form of the payment i.e. as a pension or lump sum.
As you can see there is a lot to consider when accounting for what will happen to your super upon your death. It is important to seek legal advice on your super in the context of estate planning to understand the options available to you. This will ensure your super is dealt with and paid in accordance with your wishes upon your death.
Should you have any questions on any of the above please do not hesitate to contact one of our estate planning solicitors on 9523 5535 and they can provide you with expert assistance and advice.
