Who Gets My Superannuation When I Die?
Australia’s retirement savings are governed by the highly regulated Superannuation Industry (Supervision) Act, referred to as the SIS Act. It’s important to understand that while your superannuation is being held by your fund, you are not the actual owner of your superannuation. In fact, you are the ‘beneficiary’ of your superannuation contributions. Your retirement savings are owned by a trustee who manages your fund on your behalf.
Your superannuation is money you’ve worked hard for, but if you die before you can access that money it needs to go to someone nominated by you. This money is not the same as other assets you may own; this money is held in trust by the trustees of your superannuation fund until you’re eligible to access it. The person nominated by you to receive your superannuation death benefit is known as your beneficiary.
On your death, the money accumulated in your superannuation fund is not automatically considered part of your estate. It will be paid by the fund trustee to your eligible beneficiaries as per superannuation law, the rules of your superannuation fund, and the death nomination you declared.
If a beneficiary is not named, your superannuation fund will follow the relevant super laws to determine who receives these monies if the unexpected occurs. To avoid any issues and confusion between your loved ones, we believe it’s important that you nominate a beneficiary to give clarity about who should receive your super funds on your death.
Before naming your beneficiary, it’s important that you are aware of all your options.
Your Options When Nominating a Beneficiary
Most superannuation funds ask their members to nominate a beneficiary. This is the person you want your super fund balance paid to on your death. This will be a binding, non-lapsing binding, non-binding, or reversionary nomination.
So, let’s take a look at these different nominations.
No. 1: Binding Death Benefit Nomination
When you have a binding death nomination in place it means your superannuation balance will be directed to whoever you nominate. As per superannuation law, and providing the person is an eligible beneficiary, your superannuation will be paid to that person after your death. Unless it’s a non-lapsing binding nomination, death benefit nominations typically lapse after a period of 3-years.
No. 2: Non-Lapsing Binding Death Benefit Nomination
If this type of death nomination is accepted by your trust deed, it will remain applicable unless the person is replaced or cancelled by the super fund member. On your death, your superannuation balance will be directed to the person you nominate.
No. 3: Non-Binding Death Nomination
In this instance, the trustee has control over who your superannuation funds are paid to; however, your non-binding death nomination acts as a guide for the trustees as to who should be the recipient of your funds on your death. That person could well be the person you nominated but it’s up to the trustees to use their discretion as to whether the funds are paid to that person, to your estate, or to someone else.
No. 4: Reversionary Beneficiary
If, at the time of your death, you’re taking an income stream (pension) from your superannuation fund, the payments can be redirected to your nominated beneficiary, with the pension automatically paid to that person. Note that only specific dependants are eligible to receive reversionary pensions – these are typically children under 18-years of age, or a spouse.
What Happens When No Death Benefit Nomination Is In Place?
If there’s no death benefit nomination in place it’s up to the trustees of your superannuation fund to comply with State or Territory laws to determine who should receive your superannuation balance. Note that the trustees may not distribute the funds they way you would like, which is why we always suggest nominating a beneficiary.
Do You Have A Valid Death Nomination?
Over the past few years there have been several court cases where the validity of death nominations have been successfully contested; this has mostly occurred with self-managed superannuation funds.
To have a valid death nomination it must be –
- In writing
- Signed by you
- Dated by you
- You must also make sure that the wording of your nomination is very clear and legally binding.
- Make sure the person’s name you are nominating is their full legal name.
- Ensure the correct legal terminology is used if the superannuation funds are to be directed to your estate.
Who Is Eligible To Receive Your Superannuation?
Your superannuation funds can be paid to –
- The executor of your will or other legal representative
- An SIS dependant
- Someone you have an interdependency relationship with.
In superannuation law, a dependant is defined as ‘any child of the person, the person’s spouse, and anyone the person has an interdependency relationship with’. For the purpose of this law, an interdependency relationship is defined as someone who is dependent on you for care or financial support.
Are Beneficiaries Required To Pay Tax On These Funds?
This will depend on who your superannuation funds were paid to, and how. The superannuation is tax-free if the funds are paid to a tax dependant as a lump sum.
Taxation law and superannuation law have different definitions on who is a dependant. For tax purposes, a tax dependant is your child under 18-years of age, your spouse or former spouse, or someone you have an interdependency relationship with.
There are special rules in place if you are a member of the defence force, a police officer, or a protective service officer who died in the line of duty.
If your superannuation funds are paid to your estate, tax laws utilise a ‘look through’ approach when super death benefits are directed to the legal representative of the deceased. This means they will determine if the final recipient of your superannuation balance is a dependant or non-dependant. There may be tax payable if the person is not a dependant for tax purposes, like an adult child.