Superannuation Nominations – Make It Legit!

Don’t be trapped by the pitfalls of superannuation nominations – make it legit!

Have your circumstances changed recently?  Have you married, separated, divorced, had kids, or are your kids now over 18 years old?  It may be time to consider and/or review your superannuation nomination.

A superannuation nomination is a notice to your superfund trustee outlining who you want to receive your superannuation benefits after your death.  However, your superfund trustee is only bound by a nomination that is valid [in accordance with superannuation laws].

Many superannuation funds will not guide you through what constitutes a valid superannuation nomination, which makes it all the more difficult.

So, what constitutes a valid superannuation nomination? Your superfund trustee will look at the following hierarchy of people when considering how to distribute your super:

  1. Your spouse or ex-spouse;
  2. Your children [or other financial dependents]; and
  3. Your Estate.

Let’s break these categories down a bit further…

1. YOUR SPOUSE OR EX-SPOUSE

It may seem common sense that a superfund trustee would pay your super benefits to your partner automatically.  And this is true, particularly if you have made a nomination directing the payment to your spouse.  However, if, since making the nomination, you have separated or divorced from your spouse, the nomination is not revoked and, in fact, remains valid. Thus, your benefits may be paid to an ex!

2. YOUR CHILDREN

The intention of superannuation is to fund the retirement of you and your dependents.  Accordingly, a spouse and children who are considered to be financially dependent upon you will receive the most beneficial treatment under superannuation law.  Your children who are under 25 or have a disability will be considered dependents.

You must be careful with nominations to children as there can be pitfalls, including:

  1. You cannot nominate nieces or nephews [invalid];
  2. If the children are under 25 and you have a spouse or an ex-spouse who is alive, that person will be considered the guardians and your super will be paid to them [to hold upon trust for your children until they attain the age of 18];
  3. Children who are over 25 are determined as not being financially dependent upon you, and if the super benefit is paid to them then they will be heavily taxed upon receiving the death benefit.
  4. The taxation consequences can be different for children depending on their ages at the time of your death, which will create an uneven division in real [net] terms;
  5. As long as your children are over the age of 18 years, the superannuation fund will pay an entitlement directly to nominated children, meaning you cannot protect that benefit for your children until they attain an older age.

If you intend for your super benefits to benefit your children, and any of the above issues are in concern in your current circumstances, one solution may be to nominate your Estate as the beneficiary [provided you have an up-to-date Will].  Your Will then controls the distribution of the super death benefits to your chosen beneficiaries and much can be done to reduce or avoid the tax consequences described above!

3. YOUR ESTATE

As mentioned, nominating your Estate is a great way to cover most pitfalls of superfund nominations.  Tax can be avoided or reduced where you have children under and over the age of 25, you can implement asset protection strategies for your personal and superannuation assets for your children, and you can distribute your super death benefits to third parties [who aren’t your spouse or child] through your Will.

The potential consequences of this option are that this can create a further delay between your date of death and the distribution of the superannuation death benefits, and it also has the effect of increasing the value of your estate.  If your Will is challenged after your passing, the superannuation benefits will form part of the asset pool which can be claimed against.  Some food for thought regarding the significant asset that is your superannuation.

So, maybe it’s time to review your superannuation nomination – and for the greatest benefit, we suggest reviewing it concurrently with your Will and Powers of Attorney.

Contact our Legal Team for an appointment to review your Estate Planning to find out how we can help.

 

Katherine Taylor – Solicitor

BCriminology [History], LLB

Superannuation Beneficiaries and their importance

Not a lot of people are aware that superannuation is a non-estate asset. This means that it will not automatically be dealt with, through your Will if you were to pass away. It could be your wish that your partner receives your superannuation, and you could state in your Will that that is what you want to happen, but without a valid beneficiary nomination on your superannuation fund, the Trustee of the fund may grant your money elsewhere.

There are several varieties of nomination, including non-binding, binding, and non-lapsing binding beneficiary.

Nomination of Beneficiary

A ‘Nomination of Beneficiary’ is a direction that a member provides to the Trustee of the super fund in relation to distribution of his or her funds on death. It can be done by a simple one page document setting out the member’s preference and appropriately signed and witnessed.

A member can choose to make:

A Binding Nomination

  • The Trustees MUST pay the death benefit as nominated.

A Non-binding Nomination

  • The Trustees have the discretion to follow the stated wishes of the member or direct the entitlements to another person (or persons) or pay the entitlement directly to the Estate.

No Nomination

  • If you do not make any nomination, you are not breaking any Laws. The surviving Trustees simply have full discretion to distribute the funds to the Estate or any Dependent that they chose.

As important as it is to ensure that you have nomination made, it is important to make sure that it is a valid nomination.

 

Who can I nominate?

There are restrictions on who you can nominate under the Superannuation Industry Supervision Act (SIS). Valid nominations can be made to:

  1. The Legal Personal Representative in which case the benefit is paid to the Estate; or
  2. A dependant which is defined as follows:
  • Spouse (current or de facto or former spouse and can include same-sex and living with a person in a genuine domestic basis in a relationship as a couple);
  • A child of the member (including adopted, stepchild, ex-nuptial, child of your spouse);
  • Any other person with whom the member has an interdependency relationship, which covers persons where there is a close personal relationship and one or more provides the other with financial support, domestic support and personal care. We recommend seeking advice if you have circumstances that you think may qualify.

Common mistakes that we see are Nominations being made to parents, brothers or sisters or other relatives, but there is no interdependent relationship so the Nomination is invalid. A Nomination can have “if, then” clauses to allow you to nominate persons should certain beneficiaries have already passed away – such as “100% distribution to my spouse. If I survive my spouse, or if I divorce from current spouse, then distribute to my children on equal proportionate basis”.

So please ensure that you review your beneficiaries and ensure that they are the right type for your situation, and valid. If you would like to update your superannuation beneficiaries or have a chat to one of our financial advisors, we are always here to help. Please get in touch with our team.

 

Steve Reynolds – Certified Financial Planner

BComm, Dip.FS(FP)