Your Superannuation – who gets it when you die?

According to the Association of Superannuation Funds the total value of assets held in superannuation at the end of 2015 was $2 trillion.

The total benefit payments from multi member or retail funds in 2015 was $62.8 billion. Looking at these figures it does not come as a surprise that a person’s superannuation is one of their biggest assets if not the biggest. In particular when there is a life insurance on the person’s life owned by the superannuation fund which may trigger that a relatively low superannuation balance becomes a million dollar pay out figure.What comes as a surprise is that most people misunderstand the concept of superannuation and what happens to their superannuation upon their death.

One of the biggest misconceptions about superannuation is that it automatically forms part of a person’s estate. That is not the case.

The terms of the Superannuation Fund deed of which the person is a “Member” determine what happens to the deceased Member’s superannuation death benefit. Most Members do not even read their annual superannuation statement and have never read the deed of their Superannuation Fund.

The terms of the deed generally provide that upon a Member’s death the trustee of the Superannuation Fund has discretion to distribute the superannuation death benefit to any or all of the Member’s superannuation dependants being the Member’s spouse, children, any person who financially depended on or with whom the Member had an interdependency relationship at the date of their death or the Member’s legal personal representative (being the executor or administrator of the deceased’s Members’ estate). Only in the latter case is the superannuation death benefit distributed in accordance with the terms of the Will or, if there is no Will, the laws of intestacy.

Most Superannuation Funds allow their Members to make a binding or non-lapsing binding death benefit nomination. If a valid nomination of such nature is in place at the date of the Member’s death, the trustee no longer has discretion but must distribute the superannuation death benefit to the nominated beneficiary or beneficiaries. These nominations must comply with the terms of the superannuation fund deed in order to be valid.

One other big misconception about superannuation is that whoever has been nominated as the beneficiary on a Member’s application form will receive their superannuation death benefit. These nominations are generally non-binding, which means the trustee still has discretion and may distribute the superannuation death benefit in a manner which is not in accordance to the person’s wishes.

Some other trips and traps in relation to superannuation death benefit nominations are:

  • The nominated beneficiary is not a superannuation dependent
  • The nomination does not cover 100%
  • The nomination has not be signed in the manner required
  • The nomination has lapsed (a binding death benefit nomination generally lapses within 3 years)
  • The nomination has not been reviewed when there is a change in personal circumstances, such as a relationship breakdown
  • The incorrect terminology is used in the nomination
  • The nomination was not delivered to or accepted by the trustee of the superannuation fund.

When advising a client on superannuation death benefit nomination it is important that the terms of the superannuation fund deed are reviewed to ensure the nomination satisfies all requirements and to review nominations regularly. This also applies to Members of a Self-Managed Superannuation Fund.

It should be noted that this article does not refer to Defined Benefit Funds.

If you or your clients are uncertain regarding the requirements of death benefit nominations and the terms of their superannuation fund, please do not hesitate to contact us.