What happens to your superannuation upon death?

A common misconception about death and your Self Managed Superannuation Fund (SMSF) is that your super entitlements are automatically dealt with as part of your estate or will. This is not the case!

Your superannuation may be a significant asset when you die and it should be carefully considered in your estate planning. The payment of a death benefit is governed by the Trust Deed of the fund and the Superannuation Industry Supervision Act (SIS).

To ensure that your super, and any life insurance you hold inside super, goes to the people you’d like it to, you need to nominate beneficiaries. If you don’t nominate a beneficiary, your super fund may have the discretion to decide who receives the payment, regardless of what you have in your will. Because of this, beneficiary nominations must be considered during estate planning.

There are three main types of nominations and which nomination is right for you will depend on how much control and assurance you want over the distribution of your entitlements:

1. Non-binding: This leaves the payment of a superannuation benefit on the death of a SMSF member to the trustee’s discretion but gives the trustee some guidance on your wishes
2. Binding: This is a legally enforceable document that directs the trustee who to pay the benefit to. A binding nomination expires after three years and must be completed correctly and signed by an appropriate witness to be valid
3. Binding non-lapsing: The only difference between this and a binding nomination is that as the name would suggest it is nonlapsing and does not expire after the three year period.

When determining which type of nomination is most appropriate for you, there are a number of questions that should be considered. Some examples include:

• Do you have children from an earlier or later relationship who you want to give your superannuation benefits to?
• Do you want to give your superannuation to a surviving partner or child, which might become problematic if the gift is made through your Will?
• Is the estate likely to be subject to a claim or litigation after death?
• Is there any chance that a trustee of the fund might not abide by your wishes?

It is important to note that member entitlements cannot be distributed to just anyone. The nominated beneficiary must be either:

• A legal personal representative. For example, the executor of the will or the administrator of the estate
• A dependent. This includes an individual’s spouse, child and anyone with whom the individual has an interdependency relationship.

If you nominate your legal personal representative, you can then specify in your will how to distribute your super money.

Beneficiary nominations should not be made in isolation from your estate plan and they should both be reviewed regularly.

If you need help deciphering which nomination is best for your superannuation, get in touch with the team at PKF today.