Simple question, but one that many people get wrong.
A lot of people do not realise that in Australia superannuation benefits are treated differently to personal assets like your bank account or your car, and that superannuation does not automatically form part of your estate to be distributed by your will.
For many who have been working since leaving school, our superannuation can be quite a substantial asset, particularly if there are additional death benefits payable by the superannuation fund. So what does happen to your superannuation when you pass away? That will largely depend on whether you have made a “binding nomination” that the Trustees of your super fund are required to follow.
In a lot of cases people complete their initial forms to open a superannuation account when they commence employment, they nominate a beneficiary in those forms, and then they never think about it again. For some those forms were completed when we started our first job or apprenticeship as a teenager, or for others it could be later in life when they change employers/super funds or consolidate superannuation accounts. Some people might give their superannuation statement a cursory look at tax time to ensure their employer has actually paid their entitlements but don’t think twice about their nominated beneficiaries. Unfortunately, many people do not realise that the beneficiary nominations they have made in those initial forms do not remain binding on the Trustees of the superannuation fund unless they are non-lapsing or updated regularly, usually every 2-3 years. If there is no binding nomination in place at the time of death, the Trustees will decide who your superannuation benefits will be paid to.
When considering who your superannuation benefits should be paid to, the Trustees are required to take into consideration your dependants (as defined in the relevant legislation or the fund’s trust deed) at the date of death or could determine that the proceeds should be paid into your estate if there are no dependents. While that may sound okay on paper, leaving the decision to Trustees that do not know you or your personal circumstances could have unforeseen consequences. There are cases where Trustees have paid benefits to a person who claims to be a de facto partner at the time of death rather than children from a previous relationship for example, or where Trustees have failed to pay benefits to a current partner who was not living with the person at the time of death. A stepchild, an ex-partner or an estranged child could meet the criteria to be considered a dependant by the Trustees. Even when Trustees determine that superannuation benefits should be paid into an estate, this could have tax consequences for the estate that would not necessarily occur if the payment was made directly to a beneficiary in accordance with a binding nomination.
A consideration of your superannuation is an important aspect of any estate planning. You need to consider where you would like your superannuation benefits to go, your family /relationship situation, the potential taxation consequences of any choices you make, and whether making a binding or non-lapsing nomination is appropriate for you in all the circumstances. If you need advice in relation to any aspect of estate planning, contact KC Hilton at WNB Legal on 0419 464 946.