You may have read the recent controversy about a 23-year-old legal clerk who left her superannuation benefit to her mum in the event of her death, yet it was paid to her new fiancée, aged 68, leaving her mum with nothing.
Superannuation beneficiaries can be a tricky area, so let’s delve deeper into how nominations of beneficiary work and why they’re important.
Superannuation Industry (Supervision) Act
A super fund’s deed must fit within the Superannuation Industry (Supervision) Act rules, but a fund doesn’t have to accept all allowable definitions or types of beneficiary nomination. So you will need to check with your superannuation fund what options they make available to you.
Who can be nominated as a beneficiary is complicated. For example, there are four arms to the interdependency definition in the Superannuation Industry (Supervision) Act as follows:
- They have a close personal relationship; and
- They live together; and
- One or each of them provides the other with financial support; and
- One or each of them provides the other with domestic support and personal care.
And there are caveats around how these rules are applied.
What is a nomination of beneficiary?
In the event of your death, your super fund requires you to nominate a person(s) to receive your superannuation money. Most people just sign a form and don’t think about it again.
However, just because you nominate someone to receive your superannuation benefit, it doesn’t necessarily mean that they will get it.
This is because when you nominate a beneficiary for your superannuation money it must meet superannuation legislation rules. People also mistakenly think that superannuation money is handled by their will, but superannuation money is handled separately to the estate and held in trust by the superannuation fund, which will ultimately decide who receives the money in the event of the member’s death.
What is a valid nomination?
When you join a super fund, you are asked to nominate beneficiaries to receive your money in the event of your death. The key here is that you need to nominate a person(s) that the superannuation act defines as a beneficiary. These people can be:
- Spouse or de facto, but not former spouses
- Your children
- Someone financially dependent on you at the time of your death
- Your estate, but this requires legal help to override the beneficiaries listed above.
Anyone outside of those categories may be considered an invalid nomination and therefore not be an eligible beneficiary. Your super fund may not be required to disclose to you if your nomination is invalid, which compounds the problem.
As in such complicated superannuation matters, it is best to seek the advice of a financial planner to discuss what options may be best for you.
How to specify superannuation beneficiaries
There are three ways to specify superannuation beneficiaries:
- Binding nomination/non-lapsing binding nominations
A beneficiary’s status can change between when a nomination was made and the member’s death, or the nomination may not be valid in the first place. Binding nominations can be challenged and depending on the trust deed of the fund, this can prevent payment of the benefits.
Be aware that binding nominations expire every three years. If you do not want your binding nomination to lapse, then you may be able to setup a non-lapsing binding nomination. You will need to check with your superannuation fund trustee whether they will allow this.
- Non-binding nomination
This is not binding on the trustees of the super fund – the trustees will consider your nomination(s), but if it is an invalid nomination or there is another individual whom the superannuation trustee deems to have a stronger legal claim to your money, your nomination may not be fulfilled.
E.g. A 30-year-old person decides to leave the money to their mum using a non-binding nomination. Their mum is not financially dependent on them. This 30-year-old person has been in a de facto relationship for seven months when they pass away. The super fund will most likely award the money to the deceased’s defacto as they have the stronger superannuation act definition of beneficiary. A person’s ‘wishes’ are not a legal argument in this case.
- No nomination
If no one is nominated, the superannuation fund will pay the money according to its discretion. No nomination does not mean the money goes to your estate.
This is not a safe way to ensure your superannuation money goes where you want it to.
What can you do?
A binding nomination is intended to ensure that your superannuation money goes to the right person(s) with as little stress to your family as possible. Superannuation disputes around non-binding, invalid, or no nomination, can get tied up in the system for years and cause significant undue stress.
Nomination of beneficiaries is more complex than just putting someone’s name in the form your super fund sends you. You need to be aware of who is considered a valid nomination and how to ensure the right people get your money if they are not a valid nomination.
If you’re not sure where you stand, speak with your superannuation fund or contact an estate planning lawyer to help you. Most estate planning lawyers offer your first appointment for free so take advantage of it and ensure you know your options.
If you have any questions, or need help implementing any of the options in this article, please don’t hesitate to contact Gallagher Benefits by phone or email. As a leading Employee Benefits consultant in Australia, we understand your individual and business priorities and needs.
Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. It is not legal or estate planning advice. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.