Episode Details

Twenty-three-year-old, Ashleigh Petrie nominated her mother as the sole beneficiary of her super. However, Ashleigh’s 63-year-old fiancé was successful in claiming her full super balance after she died in a car accident. Ashleigh was in a relationship with her fiancé, Rodney Higgins for only 7 months (living together for four of them). This story highlights the pitfalls and limitations to super fund death benefit nominations.

Superannuation doesn’t form part of your will

A super fund is a type of trust. That means that no one has entitlement to any super funds until the trustee makes an election to distribute monies i.e. pay a super benefit. As such, superannuation does not (initially) form part of your estate and therefore is not covered by your Will.

The trustee of your super fund must decide who is entitled to your super balance including any life insurance benefits (if the policy is held inside super).

Different types of nominations

There are two types of death benefit nominations:

As the name suggests, trustees are bound to follow the superannuant’s instructions as long as they comply with the super laws (SIS Act). Binding nominations can either be ‘lapsing’ or ‘non-lapsing’. Lapsing nominations are valid for up to three years but can be changed at any time. However, a lapsing nomination cannot be updated if the superannuant loses capacity (although their attorney may be able to update it).

Non-lapsing nominations do not need to be updated each year and therefor can offer a greater level of certainty for succession planning.

Non-binding nominations provide guidance to the trustee as to how to pay a death benefit. However, ultimately, the trustee still has discretion as to who to pay a benefit to.

If a person’s super is in pension phase, some super funds allow reversionary nominations. A reversionary nomination instructs the fund to continue paying a super pension to their nominated beneficiary such as their surviving spouse. Reversionary nominations offer few financial planning advantages.

Who can you nominate?

According to the super laws (SIS Act), super must be paid to your dependent/s. If you do not have any dependents, your super must then be paid to your Personal Legal Representative which is the executor (or administrator if you don’t have a will) of your estate. That is, super will then form part of the assets of your estate and will be dealt with according to your Will.

The super laws define a dependent to include (1) spouse including de facto relationships and same-sexual partners, (2) children of any age including step and/or adopted children or anyone deemed to be a child of the member under family law and/or (3) a person that was in an interdependent relationship with the member (which involves cohabitating with the member and one or both persons provide financial and domestic support).

If the superannuant doesn’t have any dependents, the super benefit must be paid into the deceased’s estate (Personal Legal Representative) and they will be distributed according to their Will. If they don’t have a will, then benefits will be distributed according to the succession laws in that jurisdiction.

Who should you nominate?

A super benefit paid to a financial dependent will be received completely tax-free. It is important to note that a financial dependant must meet the Income Tax A