The distribution of superannuation following a member’s death is a relatively complex area of the superannuation system. Superannuation monies do not automatically form part of a deceased’s estate. Instead, the Superannuation Industry (Supervision) Act 1993 (SIS Act) provides that:
a) the governing rules of a fund may permit a member to complete a notice that nominates a recipient(s) of their death benefits;
b) the trustee must comply with this notice if it is valid; and
c) the notice must nominate a legal personal representative (legal representative) or dependant(s).
Types of death benefit nominations
There are broadly four types of death benefit nominations:
- A Binding death benefit nomination is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed. If this nomination is valid at the time of the member’s death, the trustee is bound by law to follow it.
- Reversionary beneficiary: A member in receipt of an income stream can nominate a beneficiary to whom the payments automatically revert upon the death of the member. If the nomination is valid at the time of the member’s death, the trustee is bound by law to follow it.
- Non-binding death benefit nomination: This is a written guide by a member about how they wish some or all of their superannuation death benefits to be distributed after their death. However, even if the nomination is valid at the time of the member’s death, the trustee retains ultimate discretion to distribute the superannuation death benefits to the deceased’s dependants or estate.
- Non-lapsing binding death benefit nomination: This is a written direction by a member to their superannuation trustee establishing how they wish some or all of their Superannuation death benefits to be distributed. These nominations, if permitted by the trust deed, generally remain in place forever unless the member cancels or replaces it with a new nomination. If this nomination is valid at the time of the member’s death, the trustee is bound by law to follow it.
Trustees are required to deal with death benefit distributions according to the governing rules of the superannuation entity, but are not required by law to offer any of these death benefit nominations to their members. This results in the types of death benefit nominations available to superannuation members varying across superannuation funds, depending on the rules of the fund.
Who can receive a superannuation death benefit
Binding and non-binding death benefit nominations can only be made to the deceased’s legal representative or dependant under superannuation law. A reversionary beneficiary must be a dependant under superannuation law.
A legal representative is defined in superannuation law as ‘the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person’.
A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’.
A child of a deceased person under superannuation law includes the deceased’s biological child and also extends to an adopted child, a step child, an ex-nuptial child and a child of the person within the meaning of the Family Law Act 1975.
There are two alternative tests for an interdependency relationship under superannuation law: the basic test and the disability test. The deceased’s superannuation fund will determine whether an interdependency relationship exists.
Under the basic test, two people are in an interdependency relationship if they have a close personal relationship, they live together, one or each of them provides the other with financial support and one or each of them provides the other with domestic support and personal care.
In the absence of a valid binding death benefit nomination, the deceased’s superannuation trustee(s) will use their discretion to decide which dependant(s) the death benefit is paid to, or make a payment to the deceased’s legal representative. The decision must be in accordance with the terms of the trust deed and subject to superannuation law.
If the trustee cannot identify a dependant or legal representative of the deceased after reasonable enquiries, the trustee may distribute the benefits to other persons in accordance with the trust deed or deposit the benefit in unclaimed superannuation with the Australian Taxation Office.
In all of these situations, superannuation trustees are required to pay member’s benefits as soon as practicable after the member dies.
Benefits of making a superannuation death benefit nomination
A deceased’s assets other than superannuation are generally distributed in accordance with their Will. As superannuation is not automatically included as an asset in a deceased’s estate, it may not be accounted for by the deceased’s Will.
Making a superannuation death benefit nomination thus enables a superannuation member to direct their superannuation death benefits to their preferred dependant, rather than relying on trustee discretion to distribute their superannuation assets. This can ensure the superannuation death benefit distribution complements their Will, allowing the superannuation member’s entire asset pool to be distributed according to their wishes. This can also reduce the risk of claims against the superannuation member’s estate by other beneficiaries.
Our team at Gerard Wilkes & Associates are here to help. If you have any questions regarding your Estate planning matters, or would like to discuss this article further, please contact us at https://www.wilkes.com.au/contact-us/ or call our office 07 5532 1733.
Article referenced from: https://treasury.gov.au/sites/default/files/2019-03/c2019-t371937-discussion-paper.pdf