For many people approaching retirement, superannuation is their second biggest asset after the family home. But what happens if you pass away before using all of your superannuation?
Most people think if they have made a valid Will, it governs all the personal assets you own, such as your house, care and what is in your bank accounts.
What a lot of people don’t realise is that you don’t own your super account personally. It’s held in trust for you by the trustee of your super fund.
Under Australia’s existing super laws, the trustee of your super fund is the one who gets to make the decision about who receives your super death benefit. This trustee has a broad discretion when it comes to who your death benefit is paid to and it may not be the person you would have selected.
To help guide the trustee on who you would like to receive your death benefit, most super funds encourage you to fill in a form and legally nominate your desired beneficiary. In some super funds, your written nomination can bind the trustee so it is required to carry out your wishes.
Without clear instructions, the fund trustee will use their own legal discretion, which may not exactly reflect your will and can be at risk of claims by other beneficiaries.
Even if a person’s Will states their intention for their estate to be split between friends, without the proper steps being taken, the superannuation fund trustee cannot legally provide the money to anyone but a dependent.
According to the Superannuation Industry (Supervision) Act, there are only three types of people who can be nominated as beneficiaries of your super fund:
- dependents, including spouses and children;
- people with whom you had an interdependency relationship where there was a close personal relationship, you lived together and they provided financial support to each other; and
- a legal representative.
A legal personal representative is the executor of the will or estate administrator or someone who has enduring power of attorney. This third option is important for people who want their superannuation to be paid to someone other than a partner or child.
For a super fund to recognise a legal personal representative, people need a valid binding death benefit nomination.
The superannuation death benefit will be paid to the representative, who can then distribute the superannuation money in the way the person intended, as stipulated by a Will. It’s also important to note that you need to update the death benefit nomination every three years once you legally nominate someone – time to check with your super fund?