What happens to your superannuation when you die?
The distribution of money in a superannuation fund follows a different set of rules to other assets left in a Will. It’s important to know how superannuation benefits are paid after you’re gone, and how you can plan ahead to make sure your dependants are taken care of.
Retirement these days means a lot more than grandkids, golf, and gardening - who knows, you might even become one of those savvy seniors who starts a side hustle or a social enterprise?
Whatever the plan for your “golden years”, managing retirement savings as you journey through working life takes more than just sitting back and watching the balance grow.
Government policy and favourable tax arrangements have caused superannuation to become one of the most significant assets many Australians have. It can be a substantial part of the wealth you pass on to your family, so it’s essential to look at how super fits into the bigger picture of your Will and other estate planning arrangements.
Even if you’re nowhere near retirement age, you’ll have peace of mind knowing you’ve ticked all the boxes on properly managing your superannuation savings for the future (and beyond).
Does your superannuation become part of your Estate when you die?
Most people are surprised to learn that superannuation sits outside of your estate when you pass away. This is because superannuation funds are set up as Trusts, with the Trustee as the legal owner of the funds rather than you - the fund member.
The Trustee can use their discretion to pay death benefits to your Estate if approached by the Executor. If that happens, the benefits would become part of the asset pool that passes to Beneficiaries under your Will.
In most situations though, superannuation funds pay death benefits directly to the member’s dependants under fund rules, bypassing the Estate and the Probate process.
In this case, the way your superannuation death benefits are distributed depends on who you (as member) have nominated as a Beneficiary (or Beneficiaries) in your super agreement.
What is a Binding Death Nomination?
Most super funds have traditionally allowed members to nominate someone to receive their benefits after they die.
These “non-binding death benefit nominations” are used as guides to who should receive super after a member’s death*, but the Trustee can still exercise their own discretion to control whether the funds are actually distributed to the deceased’s dependants, or form part of their Estate.
A “Binding Death Nomination (BDN)” on the other hand, supersedes any discretion the Trustee may have by requiring the Trustee to follow a fund member’s written directions on how they want either all or a portion of their benefits to be distributed.
For the BDN to be binding, it must be 'valid', which means that only suitable dependants can be nominated. Under superannuation law this includes:
- a de-facto partner or spouse of the same or opposite sex;
- a child, adopted child or step child;
- any person who’s financially dependent or in an “interdependency” relationship with the member; or
- a legal personal representative (LPR).
A BDN is usually valid for a maximum of three years and lapses if it’s not renewed. You can change a BDN at any time.
The benefits of a Binding Death Nomination
BDNs are an important estate planning option because they make the process of claiming deceased superannuation benefits easier by:
- getting around Trustee discretion and ensuring that your benefits flow directly to your preferred Beneficiary; and
- allowing dependants to access your superannuation funds more quickly and without the potential hassles posed by traditional Probate.
Managing your superannuation funds for the future
To make sure you have control over how your superannuation death benefits are distributed you should:
- Contact your super fund and ask about how you can complete a Binding Death Nomination.
- If your fund doesn’t allow Binding Death Nominations consider making a non-binding nomination.
- At the very least, find out which rules your fund has in place for dealing with death benefits so you can discuss them with your dependants as part of your estate plan.
Managing your super effectively isn’t just about securing your retirement; it’s about safeguarding your legacy for future generations.