Many people don’t realise that when you pass away, superannuation is unique in a sense that it is dealt with separately from your Will.
It is therefore important to proactively take steps now to manage what happens to your super when you pass away.
Ensuring you deal with your superannuation correctly can provide asset protection to the beneficiaries of your estate as well as minimising potential tax implications.
Controlling where your super goes If you pass away can also be an effective tool to minimise the likely success of any challenge on your estate. Below is a brief overview on how to nominate your super, and who you can nominate to leave it to.
Who can you leave your Super to?
There are specific rules about who you can nominate to receive your super. This must be either:
- Your spouse [including a de-facto partner]
- A child, or children [including adopted or stepchildren]
- Any person who you may be in an inter-dependency relationship with i.e. this is a close personal relationship between two people who live together, where one or both provides for financial, domestic and personal support of the other.
- Your legal personal representative [LPR] [meaning, the executor of your estate].
You may nominate multiple people from the above list provided your total allocation equals 100% of your superannuation.
If you nominate either your spouse, children or a dependant, the super is paid directly to them and never forms part of your asset pool that is dealt with in your Will. However, if you nominate your LPR, your superannuation forms part of your estate upon your death and is distributed in accordance with your Will.
All four options provide different tax advantages [and disadvantages], that should be explored prior to nominating any individual.
What types of nominations can you make?
The type of nominations you can make depend on what your particular superfund rules allows.
Generally speaking, there are largely three types of nominations you can make to the above people, being:
- Binding Death Benefit Nominations: meaning your superannuation must be paid exactly in accordance with your nomination.
- Non-Binding Death Benefit Nominations: meaning it may be paid in accordance with the members nomination. This is used as a general guide by your super fund.
- Reversionary Pension Nominations: meaning any pension amounts you are entitled to in your super fund must be paid to the person nominated at the time you commenced your pension.
A reversionary nomination however is further restricted to being made to a person who also meets the definition of a ‘tax dependent’ which will generally exclude financially independent adult children.
Sometimes making no nomination can also be a strategic decision you make based on legal advice. Where no nomination is made, the discretion regarding how your super is distributed is left to the controllers of your super fund. This can be particularly useful for Self Managed Super Funds [SMSF] so you can strategically give your executors [who will control the fund] the flexibility to choose how to deal with your super.
Nominations can also be ‘lapsing’ or ‘non-lapsing’, meaning the nomination either expires after a certain time period or stays in place until revoked. Knowing whether your nominations lapses or not is critical to ensuring your super objectives can be achieved.
Selecting which type of nomination that is best for you is entirely dependent on you and your family’s circumstances, and if a SMSF, the type of assets you may own in your super fund. Each type of nomination has its own benefits and negatives and should be explored in relation to a person’s circumstances. Choosing the correct nomination can also provide a high level of asset protection as well as minimising being subject to an estate challenge.
So, what next?
We highly recommend advice is sought to ensure you set in place a nomination that best suits you and your family’s circumstances. It is also important to ensure your nominations are valid and up to date, as if they have lapsed, this can create major issues.
If you would like assistance on completing a nomination or advice on which nomination is best suited for your situation, please contact our legal team on 1300 BDEPOT or firstname.lastname@example.org.