No-one likes to think about the possibility of their own demise, but it’s prudent to think about what will happen if you die before you have spent all your superannuation.
Let’s look at the issues of nominating beneficiaries for your superannuation in more detail:
Who can I nominate?
• Your spouse – can be your legal spouse or de facto, who lives with you on a genuine domestic basis.
• Your children of any age – can be step-children, adopted or ex-nuptial.
• The executor of your will or administrator of your estate – also called your legal personal representative.
• Anyone with whom you share an “interdependency relationship”.
An interdependency relationship is defined as a relationship between two people who 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.
An interdependency relationship can also exist where a close personal relationship exists between the two persons but because of a physical, intellectual or psychiatric disability, one or more of the other conditions are not met.
If the person you wish to nominate is not covered by one of the definitions above, then you can’t nominate them.
How do I nominate a beneficiary?
With most super funds, there are two ways of nominating your beneficiaries. You can make your nomination binding or non-binding on the trustees of your super fund.
To make a binding nomination means the trustee must distribute your funds according to your wishes, providing the beneficiaries you nominate are valid dependents as listed above. A binding nomination must be in writing and, at most super funds, renewed every three years. If you forget to renew the binding nomination, then the trustee of your super fund will decide on how your funds are distributed.
If you have a non-binding nomination it merely tells the trustees who are your preferred beneficiaries. The trustees will still make the final decision.
What happens if I don’t have any dependents?
If you don’t have any dependents then you should nominate your legal personal representative or the executor of your will. If the trustees confirm there are no other dependents, then the funds will be distributed to your estate. If you nominate any non-dependents like your parents, siblings or friends, the trustees will give preference to distributing your super to the executor of your estate.
What happens if I don’t nominate anyone?
If you don’t nominate anyone, the trustees have sole discretion as to where your money is distributed. The trustee’s obligation is to seek out any valid dependents who may be entitled to your super.
If they don’t find any dependents, then they will likely distribute any funds to your estate.
If they do find dependents who haven’t been nominated, the trustees will still take those people into consideration, in light of factors such as the wishes expressed through your will. The amount any dependents or your estate receives is entirely at the discretion of the trustees.
What happens if I don’t nominate anyone or have a will?
If you fail to nominate anyone and have no will, the trustees of your super fund again have sole discretion as to where your funds are allocated. In this situation, the trustees have no idea what your preferences may have been. Your super may end up with your ex-spouse, a long lost friend or the state community chest.
It is vital that you have an up-to-date will expressing your wishes. If there are any past dependents – for example, an ex-spouse – in your life that you do not want to have any of your estate or super, you should make that clear through your will. Rather than ignoring the issue, you should state in your will that ‘X’ is not to receive anything of your estate.
Wills can always be challenged of course, but at least you’re giving a court some direction on your wishes and not ignoring a potential claim by a possible beneficiary.
Never nominate a non-dependent like your brother, sister or parents through your superannuation. If you have no dependents and wish to nominate any non-dependents, then appoint the executor of your will to receive your super and divide your super to anyone through your will.
This article first appeared on SuperBiz.
Rob Bourne has more than 35 years’ experience as a financial adviser.