An important consideration when setting up and reviewing your super is where you want it to go in the event you pass away. This is done through your beneficiary nomination form – however beneficiaries are generally not well understood and are often completed incorrectly.
Why is a beneficiary important?
First it is important to note – your super doesn’t form part of your estate like all other assets. So it is important to nominate to whom/where you want your super to go.
In the absence of a nomination, the trustee of the super fund can decide what happens with your money – and while they may send it the right way – they may not.
If you have a Self Managed Super fund, did you actually sign a nomination/can you find it?
Is your beneficiary eligible?
You can’t just list anyone down to receive your super. They must fall into one of the following categories:
your spouse (including de facto or same-sex)
children of any age (including adopted and stepchildren)
someone in an interdependency relationship with you
other financial dependents
A common mistake I see here is where people list their siblings, parents or friends – who don’t meet any of the above criteria. As they are ineligible, it is the same as not having a nomination.
You can also list your “Personal legal representative or Estate” which means the money is allocated to your estate with your other assets – but make sure you have a will to direct these funds.
Is it Binding or Non-Binding?
While many superannuation funds will offer both Binding and Non-Binding beneficiary nominations to members, some superannuation funds only provide a member with the ability to make Non-Binding nominations.
A non-binding nomination is just that – Not legally binding. It’s more like a a ‘wish list’. This means the Super fund (trustee) decides where your money will go. It is not to say they wont send it to the right person, but they may just do what is easiest!
A Binding nomination is a legally binding – that is the Super Fund (trustee) is unable to use their discretion - they must follow your nomination.
Has the beneficiary lapsed since last time you completed it?
Most Binding/non binding nominations expire after a 3 year period, and you may not have been notified.
An easy way around this issue is to establish a Non-Lapsing nomination – which, does not lapse every 3 years - however not all super funds have this option (Some don't even offer binding nominations).
Is the beneficiary the best person to receive the money from a tax perspective?
This can get a bit tricky but when super is paid out to beneficiaries it may be taxed at 15%.
“Tax dependents” receive the money tax free – they can include
spouse or former spouse (including same-sex couples)
child under 18
As always, if you need help ensuring your hard earned super goes to the right people when you pass away give us a call on 03 9801 8822 or send me an email to email@example.com and I can help.