Did you know that when you die, your super isn’t automatically included in your estate or Will? For many people, superannuation is one of their biggest assets, so it’s important to make sure it goes to the right people – in the most tax-effective way.
The good news is that you can control who receives your super benefits by providing specific instructions to your super fund. It’s called nominating a beneficiary, and there are three main types:
- Binding Nomination: a binding nomination gives you control. It legally requires your super fund to pay your benefit to the people you’ve chosen, in the proportions you’ve set – as long as the nomination is valid when you die.
Your super fund may offer:
- a lapsing nomination (which needs to be renewed every 3 years); and/or
- a non-lapsing nomination (which doesn’t expire unless you change or cancel it)
- Non-binding Nomination: a non-binding nomination lets you tell your fund who you’d like to receive your super, but the trustee has the final say. The trustee will consider your wishes along with your personal circumstances at the time of your death.
- Reversionary Nomination: this applies to pensions or income streams only. It allows you to nominate your spouse or another eligible dependant to continue receiving your pension payments after you pass away. As long as the nomination is valid at the time of your death, it’s binding on the trustee.
Who can you nominate as a beneficiary?
Under superannuation law, your beneficiaries can only be:
- your spouse (married or de facto partner)
- your children (including step, adopted and ex-nuptial)
- any person who is financially dependent on you
- any person you have an interdependent relationship with
- your legal personal representative (e.g. executor of your Will or administrator of your estate)
You can nominate someone else, like a sibling or friend, but only if they meet the criteria for an interdependent relationship. This usually means living together and providing each other with financial and domestic support.
What can go wrong?
If you don’t have a nomination, or it’s expired or invalid, your super fund’s trustee will decide who receives your benefit and how much. This can lead to family disputes, complaints and delayed payments.
For peace of mind and certainty for your loved ones, making a valid binding nomination can ensure your super is dealt with in accordance with your wishes upon your death.
Understanding tax on super death benefits
Whether any tax is payable on your superannuation death benefit depends on who receives it and how it’s paid. Super law and tax law define a “dependant” differently.
For tax purposes, a tax dependant includes:
- Your spouse or de facto partner
- Your former spouse (in some cases)
- Your children under 18
- Anyone financially dependent on you
- Anyone you had an interdependency relationship with
If your super is paid to a tax dependant (for example, your spouse), it’s generally tax-free – no tax on either lump sums or income streams.
If it’s paid to someone who is not a tax dependant (for example, an independent adult child), tax of up to 32% may apply. The exact amount depends on the components of your super balance.
Because this area is complex, it’s important to seek advice from your financial adviser. They can help you structure your affairs to pass on your super in a more tax-effective way.
What should you do?
If you have an existing beneficiary nomination:
- Check it’s still valid and reflects your current wishes.
- Review it whenever a major life event occurs – marriage, divorce, a new child, or the death of a beneficiary.
- You can update or cancel your nomination at any time.
- Seek legal advice to confirm your nomination is valid and correctly worded to achieve the outcome you intend.
If you do not have a beneficiary nomination:
- Consider setting one up.
- Speak with your financial adviser and solicitor to understand your options.
- Make sure your nomination reflects who you want to receive your super and in what proportions.
Your solicitor can confirm eligibility and help ensure your nomination meets legal requirements, while your financial adviser can help assess the tax impact and identify strategies to improve outcomes for your beneficiaries.
Superannuation can be complex, but getting it right makes a big difference for your loved ones. If you’re unsure about your current arrangements, talk to your financial adviser or solicitor – they can help ensure your super goes to the right people, in the right way.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. For further information on anything that has been discussed in this article, please consider seeking qualified and professional advice.
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The Wealth Mentoring Group 