Most of us who work will have accumulated some superannuation over the years. When a person dies, usually their super provider pays their remaining super to their dependents or nominated beneficiaries. Superannuation that is paid after a person's death is called a 'super death benefit'.
Keep reading to learn more about what happens to someone’s superannuation when they pass away.
What is a super death benefit?
A super death benefit is made up from the deceased’s superannuation balance, plus any insurance payouts, usually life insurance or cover. Even if the super balance is low, if the deceased had life insurance within their superannuation, beneficiaries may still receive money from the life insurance.
Who will receive the super death benefit?
There is a general assumption that superannuation will be included within a person’s estate and distributed that way, but this is not always the case.
If the deceased nominated a beneficiary for the superannuation, the super death benefit will go to that person. They also may have just nominated their estate as the beneficiary, so the funds will be sorted and distributed via the Will.
However, if the person did not specify a beneficiary for their superannuation, it is up to the super fund’s Trustee to distribute the funds as they see fit.
A Trustee is a person or people appointed to manage a super fund on your behalf. This is usually someone from the super fund, often from a board of Trustees/directors.
If the deceased noted their superannuation in their Will, but didn’t notify their super fund, then the Trustee is not obliged to follow the directions stated in the Will.
Wills and superannuation.
A person’s estate and superannuation are two separate entities. Superannuation is not legally considered an asset, therefore does not automatically fall under your estate. Within the settings of a super fund, you can nominate a beneficiary. This beneficiary is completely separate from the beneficiaries stated in your Will.
If the deceased did not nominate a beneficiary of their superannuation, the super fund Trustee will distribute the super death benefit where they see fit. This could lead to many complications, such as the funds being paid to somebody they would not want to benefit from their super, or family fighting over who receives the funds.
To ensure your family is taken care of in the event of your death, it’s best to nominate a beneficiary to receive your super death benefit.
Nominating a beneficiary.
There are two types of superannuation beneficiaries - binding and non binding.
To nominate a binding beneficiary, you will be required to do the following:
- The nomination needs to be made to the Trustee in writing and clearly set out the funds to be paid to each person nominated. It can also include the type of benefit payment (such as a lump sum or an income stream).
- Signed by you in the presence of two witnesses over 18 years of age and who are not nominated as beneficiaries.
- Contain a signed witness declaration.
- Be sent to the Trustee.
The nomination of a beneficiary is only valid for three years from the date it was signed, also known as a ‘lapsing’ nomination. If a nomination is ‘non-lapsing’, this means it is fixed and stays valid until you revoke or change it.
A valid nomination must be followed by the Trustee, even if your circumstances have changed. For example, if you nominate a spouse but then separate, but are not yet divorced the nomination is valid and the Trustee must pay the super death benefit to your spouse.
A non binding beneficiary is simply a preference of who you would prefer your benefit to be paid to. As the name suggests, this is only a preference and the Trustee has the discretion to not go with your nominated beneficiary.
Whilst this might not seem great in theory, the trustee will consider your nomination, your circumstances, if you have any dependents and relevant laws at the time of your death. They may consider the most simple solution is that the superannuation is distributed via the deceased estate
Who can you nominate as your beneficiary?
Unlike beneficiaries in your Will, there are only certain people you can nominate as beneficiaries of your superannuation and will receive the super death benefit.
- your current spouse or partner
- your children (of any age)
- someone who is in an interdependent relationship with you
- anybody financially dependent on you when you die
- your estate or personal legal representative.
Protect your super.
If you would like to nominate a beneficiary to receive your super in the event of your death, it’s best to contact your super fund directly. You may need to fill out a form or provide formal written direction to your super fund.
If you have any questions about the super death benefit or deceased estates, you can give our Bare Law Estates team a call at 1800 959 371.