November 26, 2021
5 ways to make sure your super goes to the right person when you die
Upon someone’s untimely death, their superannuation may be one of the elements of the estate that can be bequeathed and divided between their loved ones. However, this is not done through their will, as super isn’t automatically included unless specific instructions have been given to their super fund.
Often these instructions are provided through a binding death benefit nomination. These payments are usually paid out in lump sum payments and split between beneficiaries as dictated by the deceased.
What are binding death benefit nominations?
In short, a binding death benefit nomination is a legally binding document that allows you to allocate who receives your superannuation benefit in the event of your death. Only ‘dependents’ may be nominated. You can either nominate a single dependent or a number of dependents, depending on your situation.
Who are considered dependents?
Dependents are defined differently depending on what kind of law they are being examined under.
Under superannuation law, a death benefits dependent includes:
- The deceased spouse or de facto spouse
- A child of the deceased (any age)
- A person in an interdependency relationship with the deceased (involved in a close relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other).
Under taxation law, a death benefits dependent includes:
- The deceased’s spouse or de facto spouse
- The deceased’s former spouse or de facto spouse
- A child of the deceased under 18 years old
- A person financially dependent on the deceased
- A person in an interdependency relationship with the deceased
Depending on the type of law that the beneficiary is classified under affects how they can interact with the death benefits.
Why succession planning is important
A dependent may be paid a death benefit payment as either a super income stream or a lump sum in the case of an individual’s death. Non-dependents can only be paid in a lump sum. The type of death benefit payment (and who gets it) is determined by the governing rules of your super fund and the relevant requirements set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR).
Succession planning is important in business and even more critical when it comes to death benefits as they are one of the most frequently encountered legal difficulties in the superannuation and SMSF sector. Many court cases concerning death benefits are a result of poor succession planning, as people who were not stated to be recipients of the payments miss out on what they thought should be theirs.
How to make sure beneficiaries receive the right death benefits
Navigating succession planning and death benefits doesn’t need to be difficult. Here are 5 tips that will help you ensure your super goes to the right people when you die.
1. Locate and/or consolidate your super funds
If you choose not to consolidate your super funds, ensure that there is a binding death benefit nomination in place for each fund. If you’re worried about breaching the complex laws of SMSFs, speak with an expert.
2. Prepare a binding death benefit nomination
This is a notice sent by you as a member of a superannuation fund informing the trustee of your superfund about your intended beneficiaries on your death and how you want the death benefits to be paid.
3. Seek advice before making changes to your level or type of insurance cover
If you cancel or change your insurance coverage, you may be forced to disclose medical conditions that would limit your ability to obtain coverage or increase the cost of your policy.
4. Review your binding death benefit nomination each year during tax time.
The nomination is valid for three years from the date it was signed, or non-lapsing depending on the superannuation trust deed options. You can renew, change, update or revoke a nomination at any time. This can be a great time to review how your super fund is set up, providing an opportunity to explore what options you have. For example, whether you want to look into SMSFs or begin spousal contributions.
5. Seek advice on a superannuation clause under your will.
The death benefit may be paid to the estate under certain circumstances if the superannuation is not a part of an estate. You should discuss this with a professional.
Succession planning is important when it comes to death benefits, no matter the situation. Even if you are at your healthiest, you’ll want to be prepared for any eventuality. While superannuation isn’t automatically included in a will, you can still nominate beneficiaries by using a binding death benefit nomination.
Speak with an expert about what would work best for you, get in touch with our team today.