Most Australians know that superannuation is money put aside in a fund to provide for our retirement. What many people don’t understand however, is that the balance of money in your superannuation fund and any death benefits attached to the super DO NOT form part of your estate.
But I have a Will?
That’s great. Having an up to date valid Will is an important part of estate planning but it is important to understand that your superannuation falls outside of your estate and is therefore not included as an asset in your Will.
What happens with my superannuation after I die?
The trustee of the super fund will exercise its discretion and decide who will be the beneficiary/s.
If you have completed a Death Benefit Nomination form (available from your super fund) and lodged it with the fund, providing it is up to date and valid the trustee will look to who you have nominated when exercising its discretion.
If there is no Death Benefit Nomination and no death benefit dependents, it is likely that the funds will be paid to the member’s legal personal representative. A legal personal representative after death is usually your Executor (if you left a Will) or an Administrator (if you did not leave a Will).
What is the difference between binding and non-binding Death Benefit Nominations?
Death Benefit Nominations can be binding or non-binding. There are different requirements for the completion of binding Death Benefit Nominations.
Binding Death Benefit Nominations
If you have made a binding Death Benefit Nomination, the Trustee of the super fund will be bound to follow it providing that the people nominated as beneficiaries fall within the definition of ‘dependent’.
A binding Death Benefit Nomination provides certainty and may be useful in situations where there are multiple beneficiaries or blended families. It may also make the release of money from the super fund quicker and easier.
It is also important to note that a binding Death Benefit Nomination must be completed in accordance with the Superannuation Industry (Supervision) Regulations 1994 (Cth) (“SIS Regs”).
Your binding Death Benefit Nomination must be:
- in writing; and
- be signed and dated by the member in the presence of two witnesses; and
- contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence.
The SIS Regs also provide that the document must be updated every 3 years.
Non-binding Death Benefit Nominations
A non-binding Death Benefit Nomination can be advantageous in circumstances where exercise of discretion by the trustee may protect funds; for example, if one of the potential beneficiaries is a bankrupt, the trustee may take this into account when distributing funds. It provides more flexibility if circumstances change over time.
What is the definition of ‘dependent’?
The Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”) defines a ‘dependent’ as:
So, a nominated beneficiary needs to be a spouse, child under the age of 18 years or a person with whom you share an interdependent relationship.
The Income Tax Assessment Act 1997 (Sect 302.195) (‘ITAA’) also defines a ‘death benefits dependent’ as:
- the deceased person’s spouse or former spouse; or
- the deceased person’s child, aged less than 18; or
- any other person with whom the deceased person had an interdependency relationship under Sect 302 200 just before he or she died; or
- any other person who was a dependent of the deceased person just before he or she died.
What is an ‘interdependency relationship’?
An ‘interdependency relationship’ is defined in the SIS Act as follows:
- Subject to subsection (3), for the purposes of this Act, 2 persons (whether or not related by family) have an interdependency relationship if:
- they have a close personal relationship; and
- they live together; and
- 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.
There may be an exception to the need to establish all of the above criteria where a person in the relationship is suffering from a physical, intellectual or psychiatric disability. (Refer to s. 10A (2))
Most importantly, each of the requirements must be satisfied in the period immediately preceding death.
What may be considered when determining if an interdependency relationship existed?
Some aspects of a relationship that can be taken into account when considering if an interdependency relationship existed include:
- the duration of the relationship;
- whether a sexual relationship existed;
- ownership, use and acquisition of property;
- degree of mutual commitment to a shared life;
- care and support of children;
- reputation and public aspects of the relationship;
- degree of emotional support;
- extent to which the relationship is one of mere convenience;
- evidence suggesting that the parties intend the relationship to be permanent;
- existence of a statutory declaration signed by one of the persons stating that they were in an interdependency relationship; and
- one or each of them provides the other with support and care of a type and quality found in a close personal relationship rather than a mere friend or flatmate.
Examples of ‘care’ which may be indicative of a close personal relationship.
This list is not exhaustive but provides an overview of different aspects of relationships which may be examined when assessing whether an interdependency relationship existed immediately prior to death.
- Significant care provided to the other person in times of illness or emotional upset.
- Domestic and personal care by way of meal preparation, cleaning, laundry, dressing, assistance with mobility, attendance at medical appointments.
Examples of interdependency relationships may include siblings or between adult children and their parents such as in circumstances where the adult child is caring for an aging parent.
Who will my super be paid to if I die?
If you have completed a binding Death Benefit Nomination, nominating a dependent/s (inclusive of a person in an interdependent relationship) and it is valid and up to date, your super will generally be paid to those who have been nominated.
If you have not completed a binding death benefit nomination, or it is not valid or up to date, the trustee of the super fund will exercise its discretion as to who the benefits are paid to. The benefits may be paid into your estate.
If you do not have a valid and up to date Will, your estate will be distributed in accordance with the rules of intestacy which may differ between the States. This may result in your estate not being distributed in accordance with your wishes.
It is important that you seek legal advice in relation to estate planning so that the complexities can be explained to you clearly and thoroughly. This will enable you to make informed decisions and ultimately have peace of mind that your affairs will be managed in the way that would like.
No two situations are alike so make sure you get legal advice specific to your own individual circumstances.
You can contact Menzies Legal for a free initial telephone consultation. It costs you nothing to find out where you stand.
Phone: 03 9069 9997
The information contained in this article is of a general nature and should not be construed as legal advice.