Superannuation is not always front of mind when we consider our finances. For many it seems to sit in the background while other more immediate financial issues take centre stage.
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Before you know it, however, it will grow into a major asset rivalled only by your home in value. This makes it vital to be aware of exactly what will happen to your super in all circumstances. It may come as a surprise to find out that the allocation of your super in the event of your death may not always be as straightforward as you think.
Making sure of a smooth and simple transfer
Your wishes might be that your loved ones are able to receive the proceeds of your super quickly and without any hassles. The best of intentions and even an up-to-date Will, however, are not sufficient to make sure that this will be the case. Some specific actions need to be taken to ensure there is clarity around what will happen and to avoid confusion and disputes among family members.
The legal structure of a super fund dictates that any benefits payable upon death will initially be placed in the hands of the trustee of your super fund. The trustee is obligated to be scrupulous and diligent in allocating benefits and if you have not given specific instructions to the super fund about actions to be taken upon your death then delays and in some cases disputes may occur. This may leave your dependents with unnecessary stress and financial difficulties at a time when they are least likely to cope with them.
A correct beneficiary nomination is the answer
All super funds provide the option for you to complete a nomination form to specifically identify who should receive the funds. There are different types of nominations that you can make. The most effective one for most people is known as a ‘binding nomination’. This allows you to identify specific people, such as your spouse and your children. If this quick and simple form is completed then the trustee is obliged to pay the money according to your nomination. This includes any life insurance held within your super fund, as well as the accumulated investment.
An alternative to a binding nomination is to advise that funds be paid to your legal personal representative, so that they can be distributed according to your Will.
One word of warning – make sure you correctly nominate all the desired dependents, as the trustee is not permitted to contradict your nomination and pay funds to a dependent who is not nominated on your form.
Getting the right financial advice can help ensure your super goes where you want
You need to keep your nomination updated
An important aspect to be aware of is that your nomination is not perpetual. Every three years you need to renew your nomination to avoid it lapsing. This protects against the risk of changing family circumstances causing a change in your wishes regarding who should receive the funds.
An alternative option for different needs
As an alternative to a binding nomination, you also have the option to make a non-binding nomination, which gives the trustee the ability to use their own discretion on ultimate allocation. This may be a useful option if you want to nominate someone other than your immediate dependents. A non-binding nomination gives the trustee the flexibility to overrule your nomination if they judge that dependents have not been adequately catered for.
Tax matters
Another important issue to recognise is that if funds are nominated to go to someone other than a spouse or dependent children, then it may be subject to tax at a rate of 32 per cent. When you consider your super may amount to hundreds of thousands of dollars, then this can be quite a hefty windfall for the tax man. Don’t leave it to assumption. Your family’s security and peace of mind is not something that should be compromised by failing to take concrete steps to allocate the swift and accurate payout of your super funds. Take action now to make sure you know where you stand and speak to a financial planner if you have any doubts.
Do you know of situations where super payments have been delayed due to lack of a nomination? Share your story below.