Your Super usually represents a major part of your wealth if you die. Let's say you’ve got the right insurance and an up-to-date will. That’s everything sorted for your family if you die, right? Not exactly. Your Super is not dealt with in your will. So how do you make sure it goes where you want it to?
It matters who gets it
Your Super balance (especially if you have life insurance in your Super) and the family home, form the bulk of the resources that will provide for your family.
No tax is due on the benefit if your recipient is:
your spouse or ex spouse (whether legally married or not)
your kids (under 18) from a current or previous relationship including adopted and stepchildren (whether or not you were married to the other parent at the time)
any person who was financially dependent on you before you died
- someone with whom you were interdependent (for example a carer who lived with you and you supported)
These benefits can be paid either as a lump sum or as a pension.
A Super benefit paid to a non-dependent can only be paid as a lump sum and will be taxable. The portion that relates to contributions for which a tax deduction was not claimed will be tax free and the balance will be taxed at 15%. Your Super statement will usually identify the breakdown. If you only have employer contributions it will all be taxable.
The Trustee of your Super Fund decides
The trustee of your Super Fund decides what to do with your balance. Keep in mind that the trustee is usually a fund manager who doesn’t know you personally. If you have a Self Managed Super Fund (SMSF) it will be the remaining members or your personal representative.
Can you tell the Trustee what to do?
Normally the trustee decides to pay the amount to either one or more of your dependents or to your estate. If it gets paid to your estate, your executor will then allocate it according to your will. There are a few ways you can tell the Trustee what you would like to happen to your Super payout.
Most Super funds let you make a binding nomination about what they should do. A valid binding nomination does not leave any discretion to the trustee. There are strict rules on how these nominations are made. Your Super Fund will usually have a special form with instructions on how to complete it. You need to update a binding nomination every three years or it will lapse. Some funds now offer non-lapsing death nominations that remain current until it is revoked or amended. You can only nominate a dependent or your estate. A binding nomination lets you to set up your estate plan with more certainty.
Non Binding Nominations
A non-binding nomination is just a guide or suggestion to the trustee, who still retains the final say in how your super is distributed. The Trustee usually focuses on your dependents (if any) at the time of your death. If you have dependents and nominate someone who doesn’t depend on you, the trustee may not follow your wishes. A non-binding nomination gives you greater flexibility.
What should I do?
Whatever you do, it is important to keep your nominations current and up to date with changes to your family circumstances. For example if you marry, divorce or remarry, have children or your children turn 18. If you have no dependents, a binding nomination in favour of your estate will usually give you the control you need. You can deal with your Super in your will.
For simple family circumstances – those with dependent children and no children from previous relationships, a binding nomination in favour of the surviving partner or children or both, is the usual way to go. It can often be beneficial to have this as an income stream (pension).
For more complex circumstances, like blended families or those with adult children or dependent parents or siblings and for same sex couples, professional advice is important.
Think about it today, tomorrow may be too late. Set aside some time every year to review your wishes in the light of any changes that have occurred.
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Before creating LifeSherpa, Vince founded the Calliva Group; a fund manager, product issuer, adviser and lender. Vince is an adviser to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie Bank’s infrastructure team.