Today we’re diving right into superannuation death benefits. But first, to understand how they work, we need to iron out a couple of definitions:
Superannuation, or ‘super’
If you’ve migrated from another country or you haven’t entered the workforce yet, you might not be overly familiar with superannuation in Australia. Since the 1991 Budget was released, all Australian citizens have had a small percentage of their income placed into a superannuation fund by their employers. The funds are to be used when they retire. (Those who are self-employed are responsible for making payments into their superannuation accounts, usually every quarter).
Death benefit nomination
While your Will sets out where your assets and belongings go after death, a death benefit nomination rules where your superannuation ends up after death.
What is a death benefit?
If you pass away before spending your hard-earned super (damn!), a chosen beneficiary will inherit whatever’s left over. What you can do is nominate a person (or people), so your dependents or loved one can receive these funds after you die. This is what’s called a ‘superannuation death benefit’. The trustee of the fund will then be responsible for distributing the money to the chosen beneficiary or beneficiaries, in either a lump sum or in income streams.
What are the different types of death benefit nominations?
There are four main types of death benefit nominations to choose from, depending on your circumstances. Although, it’s important to keep in mind that not all superfunds offer them all. Find a general explainer below:
Binding death benefit nomination
A binding death benefit nomination* is a written direction to someone’s superannuation trustee that dictates where their death benefit goes. Since it is ‘binding’, a trustee has to follow it. This is a good way to make sure that your benefit reaches the right person, aka your chosen beneficiary.
*It’s important to note that not every superfund offers this type of nomination, so be sure to double-check your super fund’s policy to see if it’s on offer. Also, remember that binding death benefit nominations are only valid for three years (meaning it lapses if not renewed after this time).
A reversionary beneficiary is when you nominate a beneficiary to continue to receive income after you die. This is helpful for those who may have dependents.
Non-binding death benefit nomination
True to its (‘non-binding’) nature, these are more guidelines to be taken into consideration by your fund’s trustee. It dictates how you want parts of your superannuation balance (or the entire sum) distributed. Technically, this type of nomination is not legally binding, so your trustee can distribute the benefits according to their discretion. To sum it up, this type of nomination doesn’t guarantee exactly where the funds will end up.
Non-lapsing binding death benefit nomination
A non-lapsing binding death benefit nomination is what it sounds like – it never expires. Your nomination will remain legally valid unless reviewed or edited, and you can do this at any given time. Because this type of nomination is somewhat permanent, it is not offered by some superannuation funds, so be sure to check this out before making any big decisions.
To sum up, knowing what type of superannuation death benefit nomination you’d like to put in place (and taking steps to check that policy) ensures that your superannuation money will end up where you want it to go. Aside from this, it can also help you feel more at ease with death, as it gives some peace of mind knowing that your loved ones will be taken care of should the unexpected happen.
Although superannuation nominations should be organised with your chosen super fund, it is still advisable to write your arrangements in your Will, so everyone’s on the same page for when the time comes. If you need help getting started, simply contact our friendly team today.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.