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nominating beneficiaries

Who can I nominate to receive my super?

Super is the second-largest asset for most Australians, after their family home. To give you the certainty that your superannuation benefits will go to the right people when you die, you can put a “binding nomination” in place.

You can only nominate your estate, or a “dependant” under super law to receive your death benefit from super. Under super law “a dependant” is:

  • Your spouse (including a de facto spouse);
  • Your children (including an adult child, an adopted child and a stepchild);
  • Anyone who is financially dependent on you at the time of your death; or
  • Anyone with whom you have an interdependency relationship at the time of your death.

If you wish to nominate someone who is not a dependant under superannuation law (ie siblings, parents), nominate the estate. Then update your Will to instruct that, once the super money is received by the estate, it is paid to those specified beneficiaries.

You may be interested in this preparing a Will article.

Having a valid binding nomination means that the trustee must pay the nominated beneficiaries as directed by you, as long as they qualify as dependants at the relevant time, and the nomination is current.

Having a valid binding nomination speeds up the payment of benefits when you die and provides certainty that your wishes are carried out.

In most super funds a binding nomination is only valid for up to three years from the date of signing the nomination form. During this time, a binding nomination can become invalid under certain circumstances, including:

  • marriage;
  • divorce; or
  • death of the nominated beneficiary.

It is important that you review your binding nomination regularly and update it as your personal circumstances change, or, at least every three years after you made your last binding nomination. You can cancel or change your nomination at any time.

 

What about a non-lapsing binding nomination?

 

As mentioned above, binding nominations last three years before they must be renewed. However, there is a new option available in the form of a “non-lapsing” binding nomination, where there is no three-year expiry date (i.e. it does not lapse) and can still be changed and does not need renewing.

So, when you look at a binding nomination, which lasts for three years before renewal is required, if someone forgets to renew it, it then simply reverts to a “non-binding” nomination after this period. This means there is a risk to ones’ estate planning as the super fund trustee becomes responsible for the management of their super savings on their behalf.

Whereas, the new “non-lapsing” binding beneficiary nomination solves this issue. However, not all super funds offer “non-lapsing” binding nominations, so it’s important to consider this as part of ones’ estate planning and to discuss with a financial adviser.

 

What happens if I don’t nominate anyone?

If you don’t nominate someone specifically, the superannuation fund may:

  • Pay your estate so that benefits are divided according to your Will. If you die without a Will, your benefits will be divided according to a state-based formula; or
  • Look for eligible beneficiaries and pay them directly.

So, your super may end up in the wrong hands. Even if it ends up in the right hands, it will take much longer to get there.

 

How much tax will my beneficiaries pay on my super?

Another issue to consider is the amount of tax payable on the super death benefit. Superannuation death benefits are tax-free when they are paid directly to “dependants” under tax law. When you nominate your estate, tax may be payable if some of the money goes to beneficiaries who are not dependants under tax law.

If your funds are left to beneficiaries who are not dependants for tax purposes (eg. an adult child), they will be taxed on the taxable component of any death benefits they receive from your super. Under tax law, a “dependant” includes:

  • Your spouse (including a de facto spouse);
  • Your children under 18;
  • Anyone who is financially dependent on you at the time of your death; or
  • Anyone with whom you have an interdependency relationship at the time of your death.

A person who is a dependant under superannuation law, may not be a dependant under  taxation law. For example, a child over the age of 18, who is not a financial dependant or an interdependent, will be considered as a dependant under superannuation law, but not under taxation law. This means that, although they can be nominated to receive your super directly, they may pay tax on the death benefit.

You may be interested in our article “how tax works when giving or receiving an inheritance”

 

This table shows who are dependants under superannuation and taxation law.

* If also financial dependant or an interdependent

To answer all of these questions, download the guide.

nominating beneficiaries guide

 

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.