21 September 2015
The sum of money held by you in your superannuation after you die is known as the “death benefit”.
As superannuation does not automatically enter your estate, this is an often overlooked aspect of estate planning.
Therefore, when organising how your affairs, it is important to make suitable arrangements with your superannuation fund that direct them to pay the death benefit to either your dependant(s) (spouse, children, or interdependency relationship), or your legal personal representative pursuant to the terms of your Will.
Generally, arrangements can be made with your superannuation fund in two ways. You can either:
- Make a binding nomination in favour of your dependant(s) or your legal Personal Representative; or
- Make a non-binding nomination.
A close friend would not be classed as a ‘dependant’ unless your relationship with them was one of what is termed an “interdependency relationship” (this can be either a financial relationship or a person you have a close personal relationship/live with, or who provides, or who you provide with, domestic support and personal care).
The difference between the two nominations is that a binding nomination compels the trustee of the superannuation fund to pay the death benefit to your nominee/s.
A non-binding nomination merely informs the trustee of your preferred nominee/s and, in those circumstances, it is the trustee who makes the final decision.
A binding nomination can be put in place for a period of up to three years and, that being the case, will need to be renewed periodically according to the superannuation fund rules.
Please note that some superannuation companies will not allow you to make a binding nomination at all.
A binding nomination to a legal personal representative can have ramifications to the beneficiaries in any Will, as it can be subject to a Family Provision Application alleging that “proper maintenance and support” has not been made for other persons who may be entitled, such as the deceased person’s spouse, child or dependant.
There can also be significant tax ramifications depending on whom you nominate, and these should be discussed with your accountant.
To be absolutely certain that your nomination is effective, you must view the relevant trust deed for the superannuation fund or instruct your solicitor to do so.