Superannuation is a special world with special rules. To make sure that when you die the balance of your superannuation goes to the people you want to receive it, you need to sort out your Death Benefit Nomination for every super fund account you have. And make sure it’s up to date, because some nominations lapse after three years.
And beware: if you don’t formally nominate a beneficiary for your superannuation, your Super Fund Trustee will decide who gets it when you die. What you write in your will has no effect on this.
Each Super Fund has a special Death Benefit Nomination Form you must use to identify your beneficiary. But it isn’t as simple as putting down any old name.
Limits On Who Your Beneficiaries Can Be
Like I said, Superannuation is a special world. Under Super rules, your beneficiary can only be:
- A dependant, such as spouse/de facto, child, or someone you live with and mutually support
- The legal personal representative of you after dying, such as the executor of your estate.
You can’t just rely on your wishes expressed in your will, and you can’t choose just anyone.
If you choose your legal personal representative (executor of estate), your superannuation benefit goes into the pool of your estate to be distributed according to your will. So you’d better have an up-to-date will as well.
Binding and Non-Binding Nominations
Just to make life difficult, Super Funds can have binding and non-binding Death Benefit Nominations. Not all funds provide a binding nomination option, so you’ll have to check.
A binding nomination is a written notice to your Super Fund on a specified form, with witnesses, setting out who gets your Super benefit when you die. The beneficiary has to be a dependant or a legal personal representative. The Fund Trustee is legally bound to follow your instructions.
Non-binding nominations indicate who you would like to benefit, but the Super Fund Trustee has the final say. They can allow flexibility if your circumstances or wishes have changed just before your death, but you haven’t changed your nomination.
Obviously if you can trust yourself to keep the nomination information up to date, it makes sense to choose a binding nomination if it is available.
Lapsing Death Benefit Nominations – Remember to Renew
The standard Binding Death Benefit Nomination lapses after three years. The idea behind this is that people’s intentions may change, and a permanent nomination may get out of date. However, it creates its own problem – people forget to renew.
If you don’t renew, your Super Fund Trustee has to make the call.
To overcome this you could choose a Non-Lapsing Binding Death Benefit Nomination. This is effectively a permanent nomination, set and forget. But it is only available if your fund offers it. Many do not. So you may be stuck with three-yearly renewals.
Non-Lapsing Nominations also have a risk. They may get out of date and your wishes may change later in life, and you may not remember to change the Nomination.
Set Up Your SMSF Death Benefit Nominations
If you have an SMSF you can ensure that you have the type of Death Benefit Nomination you want. If the SMSF Trust Deed allows for it, you can make binding and non-lapsing Death Benefit Nominations, with some other requirements. The law here has been changing over the past few years.
If you’ve found that your SMSF Trust Deed doesn’t let you make the type of nomination you want, you should get advice on how to go about changing it.
Whatever your situation, the first thing to do is: Check that your Death Benefit Nominations are up-to-date and do it for every Super Fund you have.
Want to know more about death benefit nominations, or traps and tricks in Superannuation? Book a free consultation with us.
