Why You Need to Nominate Beneficiaries on Your Superannuation
Ensuring your loved ones are looked after when you die
When your last day on earth arrives, do you know who will benefit from your superannuation?
Don’t just assume your partner and kids will automatically become recipients. This is because your superannuation savings aren’t part of the assets distributed via your Will.
Unless you make a nomination, the Trustee of your superannuation fund will use their discretion to determine who receives your death benefits.
Sure, things may go in your favour – but if they don’t, it’s a little hard to correct things after you’ve moved onto the next world …
What is a binding death benefit nomination?
A binding death benefit nomination allows you to override the Trustee discretion mentioned above. It’s considered an instruction where the funds must be paid to the nominated person.
A nomination is legally binding – as long as it meets the validity requirements. One of these requirements is that only ‘dependents’ can be nominated, such as:
- a spouse (including de facto and same-sex)
- children of any age (including adopted or outside marriage)
- anyone who’s financially dependent
- anyone in an interdependency relationship
- a legal personal representative (LPR).
Other validity requirements include:
- making it out to the trustee in writing and clearly setting out the proportion of benefit to be paid to each person nominated. You may also include the type of benefit payment, like a lump sum and/or income stream.
- signing it in the presence of two witnesses over 18 years of age – who aren’t nominated as beneficiaries.
- a signed witness declaration.
- sending it to the trustee (as it’s not valid until it’s received!).
On the other hand, there’s also a non-binding nomination.
This nomination is considered by the Trustee – who ultimately determines the final outcome. In this scenario, they do not have to pay the funds to the nominated beneficiary.
The flexible nature of nominations
Worried about your circumstances changing?
The good news is – your nominations can be updated if required. So if you’re currently divorced and looking for a new love and/or hoping to start a family in the near future, you can go back and review your superannuation beneficiaries.
There are 2 types of nominations:
- Lapsing - These need to be renewed every 3 years.
- Non-Lapsing – These do not need to be renewed. However, it’s important to review them every now and again if they are binding. Especially if your circumstances change!
Other things to consider
When deciding upon your superannuation beneficiaries, keep in mind:
- there are different tax implications when it comes to leaving your death benefit to a dependant, a non-dependant, or your estate for general distribution. Dependent and non-dependent recipients of your superannuation death benefits are treated differently for tax purposes.
- the Trustee of your superannuation fund is the owner of any insurance policy held inside superannuation. In the event of a claim, the insurance payment is added to your superannuation balance. Unless a binding nomination is made, the Trustee will decide whom to pay all the benefits to, in accordance with the trust deed and superannuation law.
- nominations are especially important if you have multiple beneficiaries (e.g. from previous marriages) who may have a claim on your superannuation death benefit.
If you’d like a review of your current superannuation and beneficiaries, feel free to reach out to a financial advisor at Creo Wealth.
This blog is part of the Creo Wealth Superannuation 4 Part Series. Check out the previous blogs:
- What is superannuation?
- Understanding your superannuation statement
- Why do I need personal insurance?
Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.