OK, here is a bit of a morbid one and it is something most people don’t like to think about but have you thought about what will happen to your superannuation should you die? Most people assume that their superannuation will pass to their beneficiaries as per their will, but this is not necessarily the case. In fact, your superannuation does not always automatically form part of your estate should you die. Surprised?
This is because superannuation is held in a trust structure and a Trustee manages your superannuation money on your behalf. Who this is depends on the type of fund you have. For an employer scheme this is often a large institution, for self managed funds, it could be a person or a private company. When a member of the fund dies, the trustee of the super fund often has discretion to pay out the entitlements as the Trustee sees fit and they do not have to follow your wishes as outlined in your will. Generally speaking, the Trustee will only deviate from the Will if they think that all of the deceased member’s dependants have not been adequately taken care of in the Will. However, this does leave the chance that your wishes may not be followed. Being clear in your wishes is particularly important if your family relationships are complicated, for example you have ex-spouses, or children from other relationships.
If your superannuation fund allows (and most do) an effective solution can be to take out what is known as a binding death benefit nomination. This allows you to decide who is a beneficiary instead of leaving the decision to the trustee.
However, like most things with superannuation there are rules around who you can nominate. It can only be:
(1) A current spouse.
(2) Your children (including adopted and step-children).
(3) A person who is financially dependent on you or living in an interdependent relationship with you.
(4) Your estate.
Nominating your dependents directly through a binding death nomination instead of your estate enables them to get the money quicker with less chance of a dispute. A binding death nomination sounds scary but it is a pretty simple form and it doesn’t take long to fill out. It gives you peace of mind that your family will be looked after as you wish when you die. Generally, speaking the nomination lasts for three years before you have to do it again (check with the Trustee of your fund). Of course, if your circumstances change, for example through divorce, then you should change your nomination as well as your will.
It is important for your family to make sure your wishes are clear should anything happen to you. Superannuation is usually one of your largest assets and it is important for your family to get this right. Estate planning is a complicated area and very much dependent on your individual circumstances, so have a chat to your legal professional and see if a binding death benefit fits in with your overall estate plan.
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* Please note this is for your general information only and does not constitute legal or financial advice. Please see your financial adviser for advice which suits your individual circumstances.