By Matthew Hoang
What Happens to Your Super When You Die?
Outside of property, superannuation is the biggest asset most of us have and there is a pool of Australian worker savings totaling around $3.3 trillion.
The average superannuation balance sits around $147,000, yet many Australians are unaware of the importance of nominating an eligible beneficiary to ensure their super goes to the intended recipients.
It has been compulsory for employers to contribute to our super for the past 30 years, and while we spend a lifetime meticulously deciding on investments and super products, the expected distribution of these funds can be derailed if the correct paperwork has not been completed.
A Will is a legal document which sets out who will receive your assets and possessions when you die. It is important to note that superannuation death benefits do not automatically form part of your estate and are not governed by the directives set out in a Will unless specific steps are taken. In many cases superannuation funds may be paid out to the deceased’s dependents outside of the estate.
There have been many instances where the deceased has directed their super go to their friends, grandchildren, siblings, etc. only to have it ruled as an invalid nomination due to the rules governing the superannuation fund.
Type of dependents
According to the Superannuation Industry (Supervision) Act (“SIS Act”), death benefits are restricted to the member’s dependents or the member’s legal personal representative. It is important to know who is considered a ‘dependent’ to understand who can receive the deceased’s superannuation.
Under Section 10 of the SIS Act a dependent may be any of the following:
i) Spouse of the member: A spouse in a legal or de facto relationship. This can include a partner of the same or opposite sex. It is important to note it must be the member’s current spouse.
ii) Child: A child that meets the definition of the Family Law Act. This can include a biological child, adopted child, a step-child, ex-nuptial child or the children of the person’s spouse.
iii) Interdependent relationship: To be considered to have an interdependency relationship, there is no simple rule. The relationship will need to be considered on a case-by-case basis. At a minimum, the basic test outlined under the SIS Act says for two people to have an interdependent relationship they must:
- have a close personal relationship, and
- 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.
If there is uncertainty as to whether an interdependency relationship exists, a private ruling can be obtained from the Australian Tax Office.
iv) Financial dependent: A relationship exists if the beneficiary was financially dependent on the deceased member at the time of death. There is no formal definition of financial dependency, and again it would be determined on an individual basis with appropriate evidence of the financial dependency to be provided.
What happens if there are no dependents?
Members may wish to pay their superannuation death benefits to one or more beneficiaries who are not a dependent. In this case, a member of a superannuation fund can make a nomination to their legal personal representative. This is the executor of their Will.
This allows the member’s superannuation death benefits to form part of their estate and then be distributed according to their Will. Members should be aware that different tax treatments may apply between dependent and non-dependent beneficiaries, and obtain appropriate estate planning advice.
How to make a nomination
A valid nomination needs to be in place to reflect the member’s wishes. Different super funds offer different types of nominations, from binding to non-binding and lapsing to non-lapsing. Nominations should be reviewed regularly to ensure they are still valid and reflect the member’s wishes.
A member who would like their funds distributed to non-dependents (or an organisation, charity, etc.) can achieve this by filling out the form and nominating their legal personal representative / executor. This would allow the superannuation death benefits to be paid into the estate and dealt with as part of the member’s Will.
Different types of nominations
A binding nomination provides certainty that the trustee will follow the instructions of the nomination. Binding nominations can be put in place to ensure these align with the member’s wishes, but many require updating every three years.
A non-binding nomination is an expression of the member’s wishes that the trustee of the super fund will consider when exercising its discretion as to how to distribute the benefits. The trustee will make their decision based on the superannuation rules, sole purpose test and the facts present.
If you require advice on your retirement needs, please contact one of Active Super’s financial planners. Feel free to contact us on 1300 547 873 or make an appointment to see how we can help.*
Matthew Hoang is a Financial Planner with Active Super, offering superannuation and retirement planning advice to members in Sydney’s west and the south-west regions of NSW. He holds a Bachelor of Applied Finance and a Diploma in Financial Planning and is also a member of the Financial Planning Association.
*Please note, should you choose to meet with one of our planners and decide to not obtain personal advice, no fee will be payable. However, fees may apply should you choose to proceed to personal advice. Your financial planner will discuss any fee payable when meeting with you and, if a fee is applicable, will advise you of the fee should you decide to proceed with obtaining the advice.
Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321) (‘Active Super’). This article does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser. LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558) has engaged Industry Fund Services Limited (ABN 54 007 016 195) (AFSL No 232514) (IFS) to facilitate the provision of financial advice to members of Active Super. Advice is provided by one of IFS’ financial planners who are Authorised Representatives of IFS. Fees may apply. Further information about the advice services that can be provided is set out in the relevant Financial Services Guide, a copy of which is available for download at www.activesuper.com.au or by calling 1300 547 873. IFS is responsible for any advice given to you by its Authorised Representatives.