A person's superannuation can often be their biggest asset at any given time, especially when they die.
Maybe this describes you?
You may not know this, but your superannuation does not automatically form part of the assets under your will.
Your super is not usually covered by your will because your will only covers assets you in fact and in law own: property such as your house, car, investments, savings and personal items.
Your super on the other hand is held for you in a trust by the trustee of your super fund and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.
You may have some control in terms of deciding how your superannuation is dealt with on your death if you've made the necessary arrangements with your super fund beforehand.
What is a Binding Death Benefit Nomination?
This is why it is critically important that you have a binding death benefit nomination ("BDBN") with your superannuation fund.
A BDBN is a written direction to the trustee of the superannuation fund that sets out the individuals ("beneficiaries") who you want to receive your benefit in the event of your death.
If your BDBN is valid and in effect at the date of your death, the trustee must pay your benefit to the beneficiaries you have nominated in the proportions set out in BDBN.
You can make a BDBN at any time.
A valid BDBN remains in effect for three years from the date it is first signed, last amended or confirmed.
A BDBN does not take effect until it has been received and accepted by the trustee.
Usually a person's superannuation fund will pay super out to the nominated beneficiary pursuant to the BDBN in addition to any life insurance payable.
What if I don't have a Binding Death Benefit Nomination?
If you do not have a BDBN with your super fund, the trustee of the super fund decides how and to whom the benefit will be paid.
Some death benefit nominations may in fact be non-binding, so the trustee has absolute discretion over which beneficiaries receive your super and in what proportions.
Depending on the superannuation fund involved, if you don't make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which beneficiaries the money should go to, usually within a group of people who may have been financially dependent on you such as your spouse or partner and/or your children.
Why it is still important to have a will when it comes to your super
If the trustee determines to pay your death benefit to your estate, then clearly it is vital that you have a will in place which determines how you wish your assets, including as it turns out your superannuation, are to dealt with.
Obviously, if you have a will with named beneficiaries then you do have some control over who will ultimately receive your superannuation as part of the assets of the estate.
However, as we have said, your superannuation does not automatically form part of your will.
In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.
Your super beneficiaries may include:
- Your spouse or partner
- Your children
- Anybody financially dependent on you when you die.
Critically, your estate or personal legal representative can also be your super beneficiary, so that your will can then play an important part in determining how your superannuation may be deal with when you die.
One reason you might nominate your estate or personal legal representative is that you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries, as well as other people in your life.
It's important however that you ensure the information stated in your will is up to date so your personal legal representative pays out your super money as per your instructions.
It's also critical that you keep your BDBN up to date.
There are lapsing and non-lapsing binding nominations. Lapsing nominations typically expire every three years unless you renew them. Non-lapsing nominations may never expire.
When it comes to specifying your beneficiaries, most super funds will give you several options.
These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.
What should you do?
- with the benefit of our advice, have a think about how your assets will be dealt with if you died tomorrow?
- consider what would happen to your superannuation if that was the case and think of your superannuation as an integral part of your estate planning
- understand that your superannuation may not form part of your estate but accept that through careful planning you do have some control over how your superannuation is dealt with upon your death
- check your super fund allows binding nominations
- check those you're nominating are eligible (in particular, your estate or legal personal representative).
- if you plan to nominate your personal legal representative, make sure your will is up to date
- complete and sign a binding nomination form
- if your nomination is lapsing, make sure you review and renew it before it expires
- review your will and binding nominations regularly, at least every two to three years and particularly as your circumstances change (eg separation and divorce, the death of beneficiaries etc).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.