Superannuation is increasingly becoming our biggest asset. Most people have either contributed to their fund over many years and now have a considerable sum invested, or they hold life insurance within their superannuation (and sometimes they even have both).
A starting point:
Despite popular belief, your superannuation is not an asset automatically covered by your Will. It is only dealt with by your Will if:
- you prepare a binding nomination in favour of your estate; or
- the Trustee of your superfund decides to pay your superannuation into your estate.
The alternative is that on your death, your superannuation death benefit proceeds are paid directly to a beneficiary. If you do not have a current, valid binding nomination in place, the Trustee of your superannuation fund will decide which of your superannuation dependents (discussed further below) is going to receive your hard-earned asset (and in what %’s).
If you have a nomination, it is binding?
There are 2 issues at play:
1. Is your nomination a preferred nomination or a binding nomination?
Often clients come to us convinced that they have already prepared and submitted a binding nomination, however further investigations reveals that they only have a preferred nomination in place.
The difference is that if you have a (valid) binding nomination in place, the Trustee of your superfund must pay your death benefits in accordance with that nomination. In comparison, a preferred nomination is purely a suggestion to the Trustee as to who to pay your death benefits to – they do not have to follow it, and may in fact pay your benefits completely differently to how you have indicated in your preferred nomination. The Trustee has complete discretion, and this is perfectly legal.
How do you tell the difference? Your Member Statement should state whether any current nomination is binding or preferred. Further, a binding nomination is required to be signed in the presence of two independent witnesses over the age of 18 – if your nomination did not require this (for example, if you completed it online), it is most likely only a preferred nomination. If you have any doubts as to whether your current nomination is binding or preferred, you should contact your superfund directly to clarify this.
2. If you have completed a binding nomination, is it valid?
Once you have established that your nomination is in fact binding (rather than preferred) the next step is to check the validity of that nomination.
Firstly, has it been signed, dated and witnessed correctly?
Secondly, have you nominated a person who is actually eligible to receive your superannuation death benefit? Your superannuation death benefit (which includes any life insurance held within your superfund) can legally only be paid:
a) into your Estate; or
b) directly a superannuation dependent.
A superannuation dependent is defined under the superannuation laws as a spouse, child (of any age), or anyone who is financially dependant on the member or had an interdependency relationship with the member.
In a nutshell, if you have nominated parents or siblings to receive your superannuation death benefits, unless they can establish that they are financially dependent on you, the nomination will fail. This is even if your nomination was initially accepted by your Superfund (as the validity is determined at the date you pass away, rather than the date the nomination was made).
If you would like a ‘non-dependent’ to receive your superannuation, you should seek legal advice as to how to implement this into your overall estate plan. It should also be noted that only dependents as defined under the tax laws will receive your Superannuation free of tax. Critically, whilst an adult child is considered to be a superannuation dependent, they will only be considered a tax dependent in limited circumstances.
Lastly, even if your binding nomination was initially valid, has the nomination now lapsed? The majority of binding nominations for retail superfunds will automatically lapse after 3yrs. At this point in time, they convert into a preferred nomination. Although some superannuation funds will send you a reminder when your nomination is about to expire, there is no legal requirement for your fund to do so – it is up to you to be aware of when your nomination is due to expire and amend/refresh it accordingly when the time comes.
And if you have a Self-Managed Superannuation Fund… well that is a whole new kettle of fish. In this situation, the validity of your nomination will be dependent upon the requirements of your particular superfund deed ( noting that some deeds do not allow binding nominations at all).
If you are unsure as to whether your nomination meets the cut, it is best to seek legal advice. An invalid nomination (or worse, no nomination at all) can result in your most significant asset being left in the wrong hands upon your death.