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If you have a valid Will in place when you die, most of us assume it’s simply a matter of our executors taking care of all the paperwork and distributing our assets to our beneficiaries in the proportions listed in our Will.
But in fact, when it comes to your super, what you put in your Will doesn’t necessarily decide who gets your retirement savings, as the trustee of your super fund is not required to take your wishes into account.
This means you must nominate specific beneficiaries if you want a say in who gets your retirement savings after your death.
You don’t own your super assets
When you make a valid Will, it governs the distribution of the assets you own personally, like your house, car and bank accounts. What a lot of people don’t realise, is that you don’t own your super account personally. It’s held in trust for you by the trustee of your super fund.
Under Australia’s super laws, the trustee is the one who gets to make the decision about who receives your super death benefit.
To help guide the trustee on who you would like to receive your death benefit, most super funds encourage you to fill in a form and legally nominate your desired beneficiary. In some super funds, your written nomination can bind the trustee so it is required to carry out your wishes.
Who are my dependants under super law?
If you want to nominate specific beneficiaries to receive your death benefits, you need to make a valid death benefit nomination.
A key rule for making a valid death benefit nomination is you must nominate one or more of your dependants under super law.
Super law considers a person to be your dependant if – at the time of your death – they were:
- Your spouse or de facto spouse, including same sex
- One of your children of any age
- In an interdependency relationship with you.
Under super law, you are considered to be in an interdependency 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 dependants under super law, see the ATO website here.
5 types of death benefit nomination
When it comes to nominating the beneficiary you would like to receive your super death benefit, you need to fill in the necessary paperwork to ensure you provide clear instructions for the trustee of your super fund. Otherwise, the decision on where your money goes will be made by the trustee.
Your benefit nomination can be renewed, changed or revoked at any time.
There are five main types of death benefit nomination offered by super funds. It’s important to understand the differences between them so you choose the one most suitable for your personal situation:
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 this situation, you are leaving it up to the trustee of your super fund to decide who gets the money. However, the beneficiary selected by the trustee may not be the person you would like to receive your super death benefit, or the proportion of it you intended.
2. Non-binding nomination
This is the most common type of death benefit nomination and is offered by most industry, retail and corporate super funds. With this type of nomination, the trustee of your super fund will look at the benefit nomination you make, but it retains final say over which of your beneficiaries receives your super and in what proportions.
Having the discretion to consider factors such as your personal relationships and circumstances when you died means the trustee may distribute your benefit differently to the nomination you made. The trustee may do this if it deems it appropriate, such as if you have a new spouse or a different financial situation to when you made the nomination.
It can take time for the trustee to make a death benefit decision. Your beneficiaries may not receive the money for many months if the trustee needs to investigate your personal circumstances to make a decision.
The trustee may also decide to pay your death benefit directly to your LPR. If this occurs and you don’t have a valid Will, your super death benefit and the rest of your estate will be distributed as required under the intestacy laws applying in your state.
3. Binding death benefit nomination (BDBN)
If you make a valid BDBN, the trustee of your super fund must pay your super death benefit to the beneficiaries you nominate, in the proportions you listed in your nomination. A binding death benefit nomination overrides the normal trustee discretion on payment of a super death benefit.
BDBNs normally lapse after three years unless they are renewed. If you do not renew your BDBN, your super fund will consider you do not have a death benefit nomination in place.
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. To be valid, your nomination also needs to be in line with the governing rules of the SMSF.
A BDBN can be useful if you have concerns your wishes in relation to the distribution of your super benefit might not be carried out when you die, or made in the proportions you wish. This may occur in situations such as blended or second families, or where you have responsibilities for a disabled child.
Having a BDBN can also speed up the process of paying out your super death benefit. If your beneficiaries need money quickly (for example, to pay a mortgage or school fees), a BDBN can allow the trustee to pay out your death benefit in a more timely manner, as it does not need to determine the correct distribution.
4. Non-lapsing binding nominations
A non-lapsing BDBN normally never expires and remains in place until you cancel it or replace it with a new death benefit nomination.
This means you do not need to update your death benefit nomination in writing every three years. With a normal BDBN, you risk forgetting to renew your nomination every three years, resulting in the trustee once again having the discretion to decide who receives your super death benefit (and any life insurance in your super account).
Non-lapsing BDBN are not offered by every super fund, so you need to check with your fund or SMSF to see if this option is available to you.
5. Reversionary nomination
If you receive a super pension or income stream, some super funds allow you to make a benefit nomination so the income stream will automatically revert to a particular beneficiary – usually your spouse – on your death.
With this type of death benefit nomination, the fund trustee is required to continue paying the super pension to your beneficiary if your 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.
Usually, reversionary nominations can only be made when you start a super pension, so if you already have one in place you may need to stop and restart the pension to make it reversionary. For more information, read SuperGuide article Reversionary pensions: What they are and how they work