Binding and Non-binding Superannuation – what’s it all mean?
**Who is going to get your hard earned Superannuation **You’ve put away money for that rainy day – but who will get this money if you die?
When you die the Trustee of your super fund decides on who receives your super. Many people are blissfully unaware that their entire super, and often their insurance benefits, are up for grabs amongst the dependants they leave behind. Many more do not know who is a ‘dependant’.
**Hang on I told them who was to get my super if I die **Under superannuation law, the Trustee of your super fund has the discretion to pay out your super benefits if you die amongst the defined ‘dependants’. At this stage you might say to yourself, this does not apply to me, I have nominated my beneficiaries. Are your bases covered?
Was it a binding nomination? Or did you just write in your partner’s or your children’s name. Have you checked recently? It is surprising how many people nominated mum or dad 20 years ago and now have a family.
Okay I didn’t do that binding thing On the positive side, this power allows the Trustee to take into account a new spouse or family if the Superannuation Member never got around to updating those nomination forms. The downside is that this may mean that your “ex”, who you never got around to removing as a nominated beneficiary, may get their hands on your super after you have gone and it is too late to argue. Will your ‘ex’ take care of all your children properly? This is not something we should leave to chance. You need good financial and legal advice and this advice must be within the context of all your financial affairs and your specific and unique family circumstance. A simple ‘kit’ just won’t cut it.
Binding Nominations Well now you can have the final say about who receives your super. This feature is called a Binding Death Benefit Nominations (Binding Nominations).
What are the benefits of making a binding nomination? You remove any uncertainty about who receives your super (including insurance amounts) when you die. This means you can nominate exactly who gets what. Provided you get good professional advice you can prevent unwanted claims against your super. This makes your Estate Planning more precise and effective.
**Who can I nominate? **You can nominate any of your dependants as defined under the superannuation law – i.e. your current spouse (including your defacto) or your child of any age (including adopted children and your spouses children), or a person financially dependent on you at the time of your death (your grandson you are raising). You can also nominate your estate (your assets in your Will). It is important to understand the financial consequences of who you nominate.
It is also vital that you understand who is considered your child under the super laws. This can be quite shocking – particularly if you are separated but not divorced and have a defacto partner. The definition of child is very broad.
You can split the benefit between people as long as you give details of those dependants and the proportional share you want to go to them. You can also determine how they take their super in certain circumstances – such as pensions for spouses rather than a lump sum payout. Only the nominees who are dependents at the time of your death can receive your super so it is important to review this with your advisors regularly.
Must I make a binding nomination? No. The decision is yours to make. You can make or revoke a binding nomination at any time prior to your death provided you have capacity.
What happens if I don’t make a binding nomination? The Trustee distributes your benefits amongst your dependants and your estate in whatever way it believes is fair and reasonable. This is done taking into account the nomination you completed on your application form (remember, though, they are not bound by your nomination unless you made a ‘Binding Nomination’).
Special care needs to be given to self managed super funds. Who will be the Trustee at the time that you die? If that is your spouse or a child can you be certain that they will put your other family member’s needs and your wishes ahead of their own interests. It is not against the law for your Trustees to use their power to give your super to themselves if they are your ‘dependent’
What if I have already named my beneficiary? Any nominations made before December 1999 are not binding on the Trustee. The Trustee continues to take them into account when exercising its discretion, provided you do not make a ‘Binding Nomination’. However, if you make a ‘Binding Nomination’ now, you override any prior death benefit nomination you have made.
Are binding nominations effective forever? No. You can revoke or change your nomination at any time. Some nominations lapse other remain until you change or revoke them. Each super fund has its own rules and you must be certain that you comply with the rules to ensure your nomination is valid.
How do I make a binding nomination? Contact your super fund and ask them whether they allow you to make binding nominations. You will need to complete a special form and have your signature witnessed in a special way. It is very important that you discuss this with your lawyer and financial advisor before you make a binding nomination. All your assets and interests must be considered to ensure that your wishes can be upheld after you die.
What happens if my nomination is invalid? If your nomination is invalid for any reason, e.g. not signed properly, your super is paid at the discretion of the Trustee, to either your dependants or your estate.
Is there anything else I should consider? You may want to consult an adviser and a lawyer to determine any tax and legal implications and to ensure that you achieve the optimal financial result for your dependants. Bear in mind that superannuation money left to someone other than a spouse or minor (under the age of 18) dependant is in most circumstances taxed.
How does the Trustee make their decision Generally a fund’s trust deed determines a benefit is paid to a dependant or anyone who is financially dependent in any way on the member. The Trustees must also go through a pain staking process, which involves notifying anyone who may be considered a dependent and entitled to claim on your super. This may encourage people to make a claim, purely because it has come to their intention that they may be entitled to a benefit.
As a result the distribution of a member’s super death benefit can become a time consuming and sometimes costly process. Beneficiaries can appeal the trustee’s decision through the Superannuation Claims Tribunal and due to the processes involved, the distribution of the superannuation proceeds can take many months and even years.
In the meantime, your loved ones are left to deal with the financial, emotional and physical devastation of no longer having you in their life. To add to their difficulties, they are left to deal with the stress of the superannuation claim appeals process, not to mention the disintegrating family relationships that may result from such a process.
You will need to keep your nominations up to date, especially if you marry, re-marry or have children.
There is no substitute for regularly reviewing your affairs with your trusted advisors and ensuring that all your assets and entities are taken into account and taxation, debt management and other issues properly considered in the full estate planning context.