Why your will may not decide who gets your super

Your will may not determine who gets your super when you die. Here's how to make sure your death benefit goes where you want it to.

Super is often the second biggest asset Australians own after the family home, yet not enough attention is being paid to super death benefits and how well they are being managed and distributed by super funds.

A national survey recently conducted by Super Consumers Australia found that most fund members don't have a binding death benefit nomination in place setting out who their beneficiaries are.

It comes on the back of ASIC's findings that having a binding death benefit in place can significantly speed up a death benefit claim.

"Again, funds are dropping the ball on customer service and it is leading to real consumer harm. Reducing avoidable delays and uncertainty for grieving families is a no-brainer," says Super Consumers chief executive, Xavier O'Halloran.

Why your will may not determine who gets your super

Your will does not automatically decide who gets your super. If you want to ensure your death benefit goes to your estate, you must nominate your legal personal representative (LPR), the executor of your estate.

What then can you do to ensure your fund's super trustee follows your instruction? For starters you need to nominate beneficiaries that are eligible under super law.

Who can receive your super death benefit?

Under Australian super law, you can only nominate a dependant, or your LPR, as the executor of your will. If your benefit is paid to your LPR, your death benefit forms part of your estate and is distributed according to your will.

Dependants include: your spouse or de facto, your children including adult children and stepchildren and anyone you are in an interdependency relationship with.

If you haven't made a nomination or a non-binding nomination, the trustee of your fund may use their discretion to decide which beneficiaries to pay the death benefit to.

Which super death benefit nomination should you choose?

It's important that your nominations are clear and that you state the amounts each beneficiary should get.

There are also different types of nominations:

Non-binding nomination

You can make a nomination online or on a form. It doesn't require any witnesses.

While this is the easiest nomination to make, the trustee still has the final say on which dependants to pay the benefit to. It will carefully consider all your potential beneficiaries along with your nomination to determine how it is distributed.

Binding death benefit nomination

This allows you to nominate your dependants, or your LPR. However, these normally lapse after three years, unless they are renewed.

Non-lapsing binding nomination

Unlike binding nominations, this nomination doesn't lapse.

Why experts favour non-lapsing nominations

Nick Bruining, an independent financial adviser and founder of Bruining Partners, says that these variations often result from outdated trust documents.

"The non-lapsing binding death benefit nomination is the rolled-gold variety. You only need to do it once, although you can update it if required.

"Where there are no dependants at all, then the estate is the only way you can proceed."

Bruining says death benefit nomination forms can be accessed from your fund's website.

"Some can be done online, the paper version generally requires two witnesses. It must be completed showing the portions payable to the dependants as a percentage," he says.

For the sake of loved ones, he underlines the importance of filling in a non-lapsing binding nomination so that they aren't put under financial duress because of roadblocks and countless delays.

"Rules differ at fund level when there's a death benefit and no valid nomination. Some funds will 'dig around' to locate all dependants and possible beneficiaries. This sometimes creates huge issues with blended families or those where there's been relationship breakdowns. Some funds will pay the benefit to their estate as their default position."

Will your beneficiaries pay tax on your super?

If the benefit is paid to someone who depends on you financially, like your partner or children under 18, the benefit goes to them tax free, says Bruining.

"If the benefit is paid to a dependant that does not rely on you financially, the benefit is taxable.

"The taxable component of your super will be taxed at 15% plus the 2% Medicare levy. However, if the death benefit is paid into a deceased estate, the will takes over and the money is distributed as per the will. It is still subject to the 15% tax but because the estate is not a 'natural person', no Medicare levy applies."

He says where there is a financial dependant, usually the partner, "we would typically suggest they are nominated to get the lot because it is tax free".

Finally, don't hesitate to get information and guidance from your super fund about ensuring your nomination is valid and correct. So much rests on it.

And if you have a complaint about death benefit payments or delays, contact the Australian Financial Complaints Authority. See afca.org.au/make-a-complaint/superannuation.

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