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Estate Planning - Superannuation

We have had a uptake in enquiries regarding superannuation nominations and different nominations available. We thought it was important to have a refresher on the topic.

So here is the bottom line: Estate assets will pass under the terms of your will. Generally, estate assets include personal property, financial assets and real property. We will not go into detail regarding estate assets in this article.

Non-estate assets pass under a variety of other agreements and arrangements.

Superannuation is an non-estate asset

Firstly, your super is managed by the Trustee of your super fund. This means it will be treated separately to your estate. So, you can instruct the Trustee of your super fund on who you wish to receive your super death benefits after you die.

Your super death benefit is made up of your super account balance plus any applicable insurance benefits (i.e. payments from any insurance cover held within your super account). You can instruct your Trustee by nominating your beneficiaries.

For many people superannuation now constitutes a considerable portion of their wealth. It is important to understand your options and seek advice.

Binding nomination

Put simply, a binding death benefit nomination is a legally binding nomination that allows you to advise the trustee who is to receive your superannuation benefit in the event of your death. In order for a nomination to be binding, it must be 'valid'. One of the requirements of validity is that only 'dependants' can be nominated. Depending on your circumstances, however, you can nominate one dependant or a number of dependants. For the purposes of superannuation law, a dependant includes:

  • a spouse (including de facto, opposite and same-sex)
  • children of any age (including adopted or ex-nuptial)
  • any person(s) financially dependent on the member
  • any person(s) in an interdependency relationship with the member
  • a legal personal representative (LPR).

A standard Binding Death Benefit Nomination expires three years from the date that it was initially put in place.

The reason behind this is because people generally aren’t as consistent at updating their superannuation nominations as they are at updating their Wills (well some people don't even update their Wills), which risks superannuation proceeds not being paid in accordance with their wishes and relationships at the time of death.

Non-lapsing nomination

More recently, platform providers providing trustee services for superannuation monies including self managed superannuation funds (SMSF), have made it possible for a member of the fund to put in place Non-Lapsing Binding Nominations. A Non-Lapsing Binding Nomination is the same as an ordinary Binding Nomination, without the 3-year expiry date (i.e. it does not lapse). Some superannuation products may also provide this option as well (retail and industry).

Non-binding nomination

A Non-Binding Nomination on the other hand is more of a ‘wish list’. It tells the trustee how a member would like their benefits distributed, but leaves ultimate discretion with the trustee, taking into account the member’s relationships at the time of death.

auto-reversionary nomination - Account based pension

This nomination is available for clients that are in pension phase (drawing a income from their superannuation). The reversionary beneficiary means the nominated person (generally a spouse) will automatically continue receiving the pension after your death. There are a lot of tax advantages to this strategy depending upon the age of the surviving spouse.

Nominate your legal representative

Essentially giving your super a Will, if you decide to nominate your legal personal representative (the person you nominate to execute your will), then your super forms part of your estate and will be distributed according to your Will.

Essentially all the assets will be sold down completely to cash and distributed to your estate upon your death including any life insurance claims.

Each nomination has its advantages and disadvantages, it is best to seek advice and the right nomination for you can depend upon your personal and financial circumstances or simply what is important to you. There are tax consequences to consider in each strategy, which generally helps in deciding on how to nominate one of your biggest financial assets.

And remember, when you die, you can't put your money in your grave.

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given, and no liability is accepted for any statement or opinion or for any error or omission.