For many people, their superannuation is their biggest asset. Particularly once you add on the life insurance component to your death benefit if you died. On industry super funds, most people have at least $200,000 in life insurance.
However, your superannuation is not an estate asset to be dealt with under your Will. Instead, it is an asset held on your behalf by the trustee of your superannuation fund. The trustee is the one to determines who receives your superannuation after you die.
Who can get my super?
The range of eligible people to receive a superannuation death benefit is limited by legislation and the trust deed. The legislation limits beneficiaries to a dependant of the member, or the member’s legal personal representative (the executor or administrator of your estate). A dependant includes:
- your spouse,
- any of your children, or
- any person that you have an interdependent relationship with.
How do I nominate a beneficiary for my super?
A binding death benefit nomination can be used to tell your trustee where you want your superannuation paid after you die. This at least gives you a level of certainty that the trustee will pay your superannuation to the person you want it to go to.
If there is no binding death benefit nomination, the trustee may use its discretion to determine who will be the beneficiary of the superannuation death benefit. The trustee must determine all your current and ex-spouses, all your children, and anyone else you may be leaving with who is dependent on you. The trustee will then look at the circumstances of each person, and the merits of paying all the benefit to one or another, or splitting the benefit between several potential beneficiaries.
Unfortunately your super fund usually doesn’t make it clear how long they will be bound by a signed binding nomination. On industry super funds, a binding death benefit nomination usually expires after three years, so you have to make sure that you keep it up to date.
If you binding nomination has expired, it becomes non-binding on your trustee. So your trustee can again make their own decision about where your super death benefit should be paid.
There is a Superannuation Complaints Tribunal, if a potential beneficiary is overlooked, or a trustee makes a decisions that the estate or a beneficiary wishes to appeal.
If I don’t have a spouse or children, what do I do?
If you don’t have a spouse or children, it may be best for you to make a binding nomination with your superannuation trustee to pay your superannuation death benefit to your legal personal representative, who is the executor or administrator of your estate.
That way the superannuation is paid into your estate, and goes in accordance with your wishes under your Will. This can give you more control, and the estate will pay any tax on the superannuation.
Avoiding excess tax
It is also important to remember that there are often tax consequences on the distribution of superannuation.
Only your spouse, and children under the age of 18 years old are usually exempt from tax on superannuation. Any other beneficiary of your super will likely have to pay tax.
So if minimising the tax you pay is important to you, then this will need to be considered during the estate planning process. .
You should be specific advice on your own circumstances, and we recommend that you contact TBA Law for advice on your estate planning.