When looking to finalise an estate, most Australians might assume their super is dealt with automatically in their will. But this is not the case.
Unlike other assets, your superannuation savings are held by a super provider on your behalf.
Misunderstanding is commonplace with complaints in regard to death payouts making up the second highest form of superannuation complaint in the 2012-13 financial year, at 32.4 per cent of all complaints.
So to ensure your superannuation savings, and any connected insurance payouts, are directed to the right person when you die, it is important to understand who is an eligible beneficiary.
Louise du Pre-Alba, head of policy at AustralianSuper, explains this further.
She says your superannuation provider will normally make the decision regarding your death benefit and pay your death benefit to one or more of your dependents, or to your estate.
Benefit payments are dealt with in two ways. The first is you can make a binding death nomination to a dependent and the other, is if you do not make this nomination, the super trustee will make a decision on who to pay.
“There is a big difference between nominating your beneficiary and making a binding death benefit nomination,” Ms du Pre-Alba says.
If you nominate a beneficiary that is not binding, the trustee will consider the information provided, identify potential dependants and may also check the deceased’s will, if there is one.”
“However, if you make a binding death benefit nomination which clearly states the beneficiary, then the trustee does not have the discretion to make this decision. If you forget to nominate anyone, or take no action, the trustee is bound by the law to pay your superannuation to your dependants, or to your estate.”
To ensure your superannuation is passed onto the right person, Ms du-Pre-Alba offers these three tips:
Understand who your dependents are
This is a mistake people often make. There is a legal definition of dependent.
Dependents are a spouse, which includes married people, de facto partners, same sex de facto partners, children, and those who fall into the category who depend on you financially, or people with whom you have an inter-dependent relationship.
Superannuation is not about providing windfall gains; it is about providing retirement benefits and making sure those who are dependent are looked after. Superannuation is taxed concessionally and is intended to be used for the purpose of looking after the dependents of the deceased.
Generally, the parents of a deceased, or other family members, such as siblings, nieces or nephew will not normally qualify. These people can only qualify if they were in an inter-dependent relationship at the time of death of the superannuation fund member.
If you have no dependents, the funds will be paid to your estate and dealt accordingly. Likewise, if you wanted to donate part of that money to charity it would have to first go to your estate.
Update your ‘binding death benefit nomination’
If you want to be certain about who receives your superannuation benefit when you die, you can have a binding death nomination – you will need to update this nomination every three years.
Remember, the nominated person or people must be dependents at the time of your death for the binding nomination to work. If you’re single or have no dependents, then you can leave your superannuation to your estate.
If you have not nominated a beneficiary, contact your super fund and they will provide you with options on who you wish to nominate.
Death payouts are not always tax-free. If you want to leave your superannuation to your children, be aware that once they are over 18 and they are no longer financially dependent on you, then under tax law they will have to pay tax on the benefit they receive.
If they are under 18 and still dependent, they will receive superannuation benefits tax free.