Superannuation Death Benefit Nomination for Estate Planning
Superannuation and Death
During your working life you will accumulate superannuation benefits. In simple terms these benefits are held in a Superannuation Fund until your retirement or death.
Every superannuation fund is governed by a trust deed and managed by a Trustee. In most cases it is the Trustee who will decide the recipient of your superannuation death benefits on your death. When making its decision the Trustee of your fund must ensure that the death benefits are paid to one or more eligible beneficiaries. A list of eligible beneficiaries is set out in Section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS) (see below for list).
Most superannuation funds will allow you to nominate a beneficiary of your superannuation death benefits, however the Trustee is not obliged to pay your death benefit in accordance with this nomination unless it is a binding nomination.
Who can benefit from your superannuation?
As mentioned above, superannuation law sets out who is eligible to receive superannuation death benefits on the death of a member of a fund.
These individuals are known as SIS dependants and include:
- Spouse of the member;
- Child of the member (any age);
- Financial dependant; or
- A person with whom the member had an interdependent relationship.
Additionally, superannuation death benefits can be paid to the estate or Legal Personal Representative of the deceased member. If you would like your parents or siblings to receive your death benefits then you must nominate your estate as the beneficiary of your superannuation death benefit and direct the payment to them via your Will.
Difference between SIS dependant and Tax dependant
Although the SIS Act sets out who is eligible to receive superannuation death benefits the Australian Taxation Office places further qualifications on the payment of tax free benefits. Superannuation Death Benefits paid to the following SIS dependants will also be paid tax free regardless of the components which make up the superannuation benefit:
- Child under 18 years of age;
- Financial dependant; or
- A person with whom the member had an interdependent relationship with immediately prior to his or her death.
An adult child who receives superannuation death benefits can pay tax of up to 30% plus the medicare levy.
Nominating your beneficiaries
As evidenced above, the list of individuals who may benefit from your superannuation death benefit is not extensive, therefore you may find yourself in a position where you are not married, have no children and you wish to benefit a sibling, a parent, a friend or perhaps a charity. If this is the case then you must nominate your estate as the beneficiary of your superannuation death benefit and direct the payment to them via your Will. In this circumstance it is important that you not only nominate your estate but that you also update your Will to ensure it reflects your current wishes and intensions.
There are generally two options available to a member of a fund when nominating beneficiaries: binding and non binding nominations. Whether these options are available to you are dependent upon the terms of the trust deed governing your superannuation fund. To find out whether you can make a binding nomination please contact your Superannuation Fund, however before deciding whether a binding nomination is right for you, please speak with your estate planning lawyer.
If you have a SMSF … (self-managed superannuation fund).
Non Binding Nominations
By choosing to make a non binding nomination you alert the Trustee of your superannuation fund of your wishes. The Trustee is not required to follow your wishes however it may take them into consideration when determining who will receive your superannuation death benefits. In most cases the Trustee will consider the financial circumstances and needs of all SIS dependants.
When making a binding nomination, you are directing the Trustee of your superannuation fund to pay your superannuation death benefits to those beneficiaries nominated in your binding nomination. Your Trustee has no discretion to pay the death benefit to anyone else.
It is important to note that in accordance with superannuation law, a binding nomination must be renewed every three years. If it is not renewed it then lapses and is no longer valid. Additionally there are special legal requirements which must be met for a binding nomination to be valid. It is advised that you speak with your solicitor or superannuation fund for further information.
In recent years superannuation funds have varied their trust deeds to authorise the use of non lapsing binding nominations. This type of nomination should be used with caution. Just like your Will, your nomination should be reviewed at least every 2-3 years. If you fail to frequently review your nomination or Will, the consequences can be dire especially if your personal circumstances have changed.