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Navigating Superannuation Death Benefits

Navigating Superannuation Death Benefits: The Crucial Role of Nominations and Trustee Discretion

Dealing with the aftermath of a loved one’s passing involves managing their estate, a process that can often be complex and emotionally challenging. What is required to deal with your estate will often be linked to the types of assets owned. One such asset which can present its own challenges is superannuation as distribution of superannuation benefits operates differently from other assets in estate planning.

Understanding the superannuation nomination process

When a loved one passes away, their estate is typically distributed in line with their last will or through intestacy laws. However, superannuation benefits don’t follow this pattern as a default, unless a nomination is place directing the superannuation benefits be paid to your estate. Instead, they are distributed based on a death nomination made by your loved one or, in the absence of a valid or binding death nomination, they are distributed at the discretion of the trustee of the superannuation fund.

Why are superannuation death nominations so important?

They make sure your superannuation benefits are distributed as you want to be.

Nominating beneficiaries of your superannuation death benefit

Under superannuation law you can only be considered a dependant entitled to receive a death benefit if at the time of the deceased member’s passing you fit into one of the following categories:

  1. A spouse or de facto partner of the deceased
  2. A child of the deceased, regardless of age
  3. A person in an interdependency relationship with the deceased.
  4. An interdependency relationship is established when both parties meet the following criteria:
    • They share a close personal bond.
    • They reside together.
    • Financial support and domestic care are provided by one or both parties to the other.

Any intended beneficiary which doesn’t fall into one of these categories may result in an invalid death nomination. In this scenario it is sometimes a good option to instead nominate your estate such that your will can then distribute the benefit as you need.

Types of superannuation nomination

Superannuation nominations can be categorised as lapsing or non-lapsing, binding or non-binding. These nominations influence how benefits are distributed on your loved one’s passing.

A lapsing nomination typically requires renewal within a specified timeframe, often every three years, to remain binding. If not updated within the required period of time, it becomes non-binding. This will allow the superannuation trustee to exercise their discretion in deciding who will receive the benefits. 

In contrast a non-lapsing nomination remains effective indefinitely until or unless it is amended or revoked by your loved one.

Binding vs. non-binding superannuation nominations:

The distinction between binding and non-binding super nominations lies in the level of control taken by the super member to bind the trustee to pay benefits as directed.

A binding nomination serves as a legally enforceable directive that mandates the trustee to distribute benefits to the nominated beneficiaries, provided the nomination is valid e.g. signed correctly, beneficiaries are a dependant of your love done under superannuation law. If the rules of the superannuation fund permit a binding death benefit nomination, you can nominate either one or multiple dependants, or your legal personal representative, to receive your superannuation benefits.

Conversely, a non-binding nomination serves as guidance or suggestion to the trustee as to payment of the death benefits, who retains discretion in the final decision regarding benefit distribution, considering the nominated beneficiaries but not being legally bound to adhere strictly to them.

Superannuation trustee decision-making

In scenarios where a valid binding nomination is absent, the trustee in exercising discretionary powers has the authority to direct the benefits either to the Legal Personal Representative (LPR) or one or more dependants as outlined above.

The superannuation trustee’s role in determining the allocation of superannuation benefits is pivotal. Several factors weigh into their decision-making process, including the super trust deed itself, any potential beneficiaries (such as spouses, children, and dependents), individual financial needs, support provided to or from your loved one, the nature of the relationships, existing legal obligations, and the expressed wishes of the deceased especially as documented in their will.

Unpacking the superannuation appeal process

Challenging a superannuation trustee’s decision involves a structured approach. Initially, an internal review within the superannuation fund is undertaken. Should this not achieve a satisfactory result, the matter can be escalated to the Superannuation Complaints Tribunal. This tribunal holds substantial powers comparable to those of the super trustee. Additionally, there exists the option of appealing to the Federal Court, albeit restricted to legal grounds. Strict time limits apply in relation to an appeal to the Federal Court.

Choosing superannuation beneficiaries wisely for estate planning

You can’t simply assume your superannuation will go through your will or get paid to your next of kin as a default. Understanding the intricacies of superannuation nomination protocols and superannuation trustee discretion is essential for families aiming to ensure a smoother transition of assets. When considering the most suitable nomination type, you need to look at factors such as:

  • whether there is any likelihood of a change of circumstances
  • a potential change in your intended beneficiaries
  • whether you have superannuation dependants to leave super benefits 

Seeking expert estate planning legal advice can provide the necessary guidance to navigate these complexities and aid in making an informed decision to ensure that the desired beneficiaries receive the intended benefits.

If you are looking to get your estate planning in order and want to chat it over with a lawyer why not book in a free 10 minute chat here or send us an email here or at [email protected].

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