Strict rules govern how your super is distributed when you die – and it’s important to follow those rules to make sure your money goes to whom you want.
One of the most important decisions you make when you join a super fund has nothing at all to do with investment. It revolves around the question of who to nominate as the beneficiary of your super when you die.
It is a critical decision – because if you don’t get it right your savings could be given to someone other than your preferred beneficiaries.
Who can be a beneficiary?
Upon your death, subject to the trust deed, your superannuation can only be paid to:
- Your current spouse (including a de facto spouse)
- Your children (including natural, step and adopted children)
- A person who was financially dependent upon you at the date of death
- A person with whom you had an interdependency relationship at the date of death
- Your legal personal representative (estate).
Whether a person meets these requirements is tested only at the time of death so it is important to keep any nominations up to date. In some cases, such as dependency or interdependency, keeping records to show the relationship may be helpful.
An interdependency relationship can help to include people who are dependent upon you to qualify as a beneficiary, but meeting the definition can be difficult. It is defined as a relationship between two people (whether or not related) where:
- They have a close personal relationship, and
- They live together, and
- One or both provides the other with financial support, and
- One or both provides the other with domestic support and personal care.
For the purposes of this definition, all of the circumstances of the relationship must be taken into account, including:
- The duration of the relationship
- Whether or not a sexual relationship exists
- The ownership, use and acquisition of property together
- The degree of mutual commitment to a shared life
- The reputation and public aspects of the relationship
- The degree of emotional support
- Any evidence suggesting that the parties intend the relationship to be permanent.
One of the most important aspects is that there needs to be a commitment to a shared life together, not just a relationship of mere convenience.
Directing the trustees
The beneficiaries you nominate when you join a fund are normally only a guide – the trustees of your fund will have the ultimate discretion as to who will receive your super. They will take into consideration any nominations you have made, but are not bound by your request unless you have made a “binding death benefit nomination”.
Not all funds offer the option to make a binding nomination so ask your fund for details.
It is also important to note that you can still only nominate someone who is eligible to be a beneficiary. If you nominate anyone else, it will make the nomination invalid. If you want your superannuation to pass to someone else, such as a friend or charity, you should consider nominating your estate as the preferred beneficiary and then deal with distributions in your will.
Regular reviews
It is important to review death benefit nominations regularly and to include full details of your beneficiaries – including their relationship to you, their full name and their address.
Keeping your super fund trustee informed of any changes to your beneficiaries – or changes to their personal details – will make the task of distributing your super much less complex for all involved.
It’s also worth noting that in many funds, binding death benefit nominations may only be valid for three years. If this is the case with your fund, you need to renew the nomination at least every three years to keep it valid.