If you haven’t checked the beneficiary details on your super lately, you might be surprised about what happens to your benefits if you die prematurely. By the time you retire, your super balance is probably going to be one of your biggest assets. For some people it could even be worth more than your family home. And chances are it’s going to need to be in order to fund the length of retirement most people can expect.
If you haven’t checked the beneficiary details on your super lately, you might be surprised about what happens to your benefits if you die prematurely.
By the time you retire, your super balance is probably going to be one of your biggest assets. For some people it could even be worth more than your family home. And chances are it’s going to need to be in order to fund the length of retirement most people can expect.
Life being unpredictable, there is always a chance that you won’t get to spend your entire superannuation benefit. You may also have an insurance death benefit in your super fund – which may mean the final payout from your super could be a significant percentage of your total assets when you die.
So where is it going to go?
When you open up a superannuation account, you are required to nominate who you would like to receive your benefits if you die. These nominations can be either ‘binding’ or ‘non-binding.
If you make a non-binding nomination, the trustee will take this into consideration when they distribute your benefit, but there is room for the trustee to use their discretion. This means your benefit may be distributed in a way that’s different to your intentions. And if you belong to a public super fund, your benefit may be subject to claims through the Superannuation Complaints Tribunal (not applicable to SMSFs).
Making a ‘binding nomination’ gives you greater certainty over where your benefit goes, as the trustee must abide by a binding nomination. However, what many people don’t realise is that binding nominations only last three years. After that, any benefits will be paid to your estate.
Because of this, binding nominations should be reviewed every three years to provide greater certainty over where your superannuation death benefit will go. You may also want to review your binding nomination sooner if you separate or divorce from your partner, as a binding nomination overrides anything you might have changed in your Will.
Who are your beneficiaries?
An important consideration when choosing the beneficiary for your binding nomination is the tax treatment of benefits paid from super.
From a tax perspective, the ‘ideal’ beneficiaries of a superannuation benefit are your spouse and/or dependent children under 18, as they can generally receive your death benefit tax-free. If you nominate adult children, or friends or siblings, they may be forced to pay tax on the benefit of up to 31.5%.
This is something to take into consideration when you’re dividing up your assets in your Will. For example, if you’re looking to divide your assets between your spouse and adult children, you may wish to leave your entire superannuation death benefit to your spouse and your house or other investments to your adult children. That way you may be able to avoid your estate being diluted by tax.
To make sure your assets will be passed on in the way you intended, you should review your estate planning strategy.