Imagine this: you’re about to gasp your last breath before you die and you suddenly wonder, “Crickey, who’s going to get my super?”
Wouldn’t that be an awful way to exit the building?!
If you’re anything like me, you don’t want to die, you think you’re never going to die, you can’t imagine life being dead and you wouldn’t be dead for quids.
But, deep down, we all know that the unfortunate time will come.
To ensure your final moments are not burdened with the thought of superannuation, let’s take a look at who gets your super when you die and what you can do to control it.
What Happens to Your Super When You Die?
The payment of your superannuation to your beneficiaries will be based on any death benefit nominations you have in place.
If you have a superannuation income stream in place, the payment of this upon your death will depend on whether it is a reversionary pension or not.
When I use the term superannuation, I am referring to both superannuation accumulation accounts and superannuation income streams, such as an account based pension.
Firstly, it is important to know that only certain people are eligible to receive your superannuation when you die – it can’t be paid to just anyone.
Superannuation Beneficiary Rules
Your superannuation must be paid to either your legal personal representative (LPR) or one or more of your dependants, as defined by superannuation rules.
A legal personal representative is the executor of your estate or the person responsible for administering your estate.
A death benefit dependant is defined as:
- Your spouse or de facto spouse;
- Your child; and
- A person you were in an interdependency relationship with at the time of your death.
An interdependency relationship is a close personal relationship with someone you live with, where one or both of you provides the other with financial, domestic and personal support.
These are the only people your superannuation is able to be paid to when you die.
This video helps explain who gets your super when you die:
What Happens If My Super is Paid to My LPR?
If your super is paid to your LPR it will be distributed in accordance with your Will, along with other assets that were owned in your individual name.
This can simplify your overall estate planning process, but may increase the tax on your superannuation death benefits and could increase the risk of a challenge on this portion of your assets, compared to alternative options available to you.
What Happens if My Super is Paid to a Dependant
If your super is paid directly from your super fund to a dependant, it bypasses a Will that you might have in place, because superannuation is not considered an estate asset and is therefore not distributed by your LPR, unless you have nominated your LPR as the beneficiary of your super, or your super fund trustee has decided to pay your super to your LPR due to lack of direction provided by you prior to your death.
How Do I Decide Who My Super is Paid To?
If you do not provide your super fund with a death benefit nomination and have made no nomination, the trustee of your super fund will either pay it to one or more of your dependants or directly to your LPR.
What’s the alternative?
Well, you can provide your super fund with a death benefit nomination. A death benefit nomination is a direction given to your super fund as to how you would like your superannuation benefits distributed when you pass away.
You have the option of making:
- A non-binding nomination;
- A binding nomination; or
- A non-lapsing binding nomination
Your super fund may not offer all of these options.
Difference Between Binding and Non-Binding Nominations
A non-binding nomination is a document provided to your super fund stating who you would like your super to be paid to in the event of your death. When you do pass away, the trustee of your super fund considers the beneficiaries in your non-binding nomination, but then makes the ultimate decision based on your relationships at the time of your death – taking into account any changes in relationships since you first submitted the nomination, or people who were left off the nomination with no explanation.
A binding nomination is similar to a non-binding nomination; however, the trustee is bound to pay your super in strict accordance with your nomination. The trustee has no discretion to alter who receives your super, even if your relationships have changed in the meantime. For this reason, a binding nomination has an expiry and needs to be updated every 3-years, as a means of protecting you from the fact that you may forget to update your nomination over time.
A non-lapsing binding nomination is the same as a binding nomination, but it does not have a 3-year expiry. It is up to you to remember to change it if there have been changes in your relationships or intentions.
If a person who was a dependant at the time of you making a binding nomination ceases to be an eligible dependant by the time you pass away, the trustee is unable to make a payment to that person and the binding nomination will become invalid – effectively reverting to a non-binding nomination.
A superannuation death benefit only deals with super accumulation accounts and non-reversionary pensions.
A death benefit nomination can be made at any time. Check your super fund provider’s website for death benefit nomination forms.
What is a Reversionary Pension?
A reversionary pension is an income stream that automatically transfers to the nominated reversionary pension beneficiary when you pass away.
A reversionary pension does not form part of your Estate, is not distributed via your Will and is not considered part of any death benefit nominations. A reversionary pension is a separate estate planning instrument on its own.
If a person, who was an eligible dependant when you first started the reversionary pension is no longer an eligible dependant at the time of your death, the reversionary pension will be considered a non-reversionary pension.
Only one person can be nominated as a reversionary beneficiary of your pension.
A reversionary beneficiary generally has to be nominated at the commencement of an income stream. However, I have heard of some providers allowing a reversionary pension beneficiary to be nominated after the income stream has commenced. As always, check with your pension provider.
Who gets your superannuation when you die?
Now it’s up to you. Who’s going to get your super when you die? Will you go for the flexibility of a non-binding nomination or the certainty of binding nominations and reversionary pensions?
If you are not sure whether or not you have made a death benefit nomination or have a reversionary pension, you can simply look at your latest superannuation statement or contact your superannuation provider.
When deciding who you will leave your super to, it is important to consider the estate planning and tax implications of your decisions.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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