What Happens To My Super When I Die?
Most people have significant amounts of money invested in superannuation funds. We plan to cash it in or get it as a pension when we retire. But what happens if we die while still working?
The most important thing to know is that if you die while a member of a superannuation fund, the fund money does not necessarily form part of your estate and pass to beneficiaries in accordance with the provisions of your Will.
Remember – super balances are not held by you. They are held by super fund trustees on your behalf. If you die, the trustee decides what happens to your super. So how do you make sure your super goes where you want it to?
The answer may be a Binding Death Benefit Nomination. It’s best to seek expert advice on this for your particular situation. They must be in writing and properly witnessed.
The binding nomination tells the super fund trustee how a death benefit is to be distributed in the event of the member’s death. The trustee has to follow it.
There are choices to consider: There may be reasons to direct benefits to your estate so that it is paid pursuant to your Will. Equally, in some circumstances there may be a tax advantage for your dependents if they are nominated to directly receive the Super.
If there’s no such nomination the trustee decides how benefits are distributed. Not every super fund – especially industry funds – allows such nominations. Best check before committing yourself.
Another trap is if you leave your super to your adult children who are financially independent; they could be hit with high taxes.
Joshua Crowther, a specialist in Wills at Stacks Law Firm, says it’s important to remember a binding nomination is different to a Will.
For instance, John, a widower dies with $1million in super and a will dividing his estate equally among his three children. But he has no binding nomination, and under the legislation the super trustee is bound to pay the benefit to ‘dependents’. If one of the children (even if an adult) is classified as being dependent upon John but the other children are not, then the trustee could exclude the others even though John’s Will clearly shows he wanted all his offspring to get an equal share.
“Don’t forget binding nominations do lapse and unless they are renewed the trustee will decide what to do with your super money. This could mean adult offspring miss out entirely if there is a new partner with dependent children,” Mr Crowther said.