Distribution of Superannuation Death Benefits

Estate planning

Distribution of Superannuation Death Benefits

Many Australians hold a significant portion of their wealth in superannuation however many are also unaware that superannuation death benefits are generally distributed separately to a persons estate and not included in the Will. Therefore it is important that the correct measures are in place with the super fund to ensure benefits are distributed according to the deceased members’ wishes.

When a Superannuation Fund receives notification of a deceased member the Superannuation fund trustees have procedures they need to follow and require certain completed documentation prior to releasing funds. These processes take time and can add pressure to family and/or surviving spouses to cover the costs associated with funerals as well as meeting ongoing living expenses. See related article ‘Meeting Funeral Expenses

Understanding the process and taking some simple steps will help reduce the stress during this difficult time. Keep records of the funds held including member/account numbers, your tax file number, beneficiary details and statements showing balances and the number of units held if applicable. Store them in a place which can be easily located by a surviving partner, family members and/or executors. It would be wise to keep in the same place details of relevant contacts within the fund and/or your financial planner if applicable, who may assist with the process. Apart from having a current Will in place, beneficiary nominations should be made where possible for the trustee of the fund to consider when distributing payments.

Generally the funeral director will register the death with the relevant State or Territory Government office often called ‘The Registrar of Births, Deaths and Marriages’, however it is possible for a next of kin or relative of the deceased to register the death. A Death Certificate is then issued which allows surviving family, beneficiaries and/or executors to apply for probate, if applicable, to present along with the Death Certificate to the relevant superannuation funds.

Once the fund has been notified and the Death Certificate and other required documentation have been presented they will process the ‘death benefit’ request as per the fund’s trust deed procedures and the beneficiaries/executors instructions. This can involve the completion of forms and providing identification details, a copy of the Will if required, tax file numbers and payment instructions.  It also involves the fund assessing eligibility of nominated beneficiaries, notifying them and/ or implementing reversionary beneficiary pensions.

The whole process can take as little as a couple of weeks but if there is information or documentation outstanding it may take some months. If no nominations are made and you have no current and legal Will in place (die intestate) and if there is a dispute among potential beneficiaries, the process could end up being costly and taking a long time to finalise. So with a bit of planning and preparation this can be avoided.

To advise how superannuation death benefits are to be distributed the fund member needs to make a nomination to the fund trustee. Nominations are not compulsory however if no valid nomination is made the superannuation fund trustee will decide how the benefit will be distributed and it may not match the wishes of the member. So what options are available?

Non-Binding Nomination

A Non-Binding Nomination enables a fund member to nominate a person or persons to receive the benefit upon their death. This is often called a Nominated Beneficiary. However the trustee of the fund ultimately has discretion on the distribution of the death benefit. The nominated beneficiary can be a dependent, a non-dependent or the members Legal Personal Representative (LPR) however a trustee will only pay benefits to a non-dependent if there is no dependent or LPR.

Under superannuation law a dependent is defined as either the surviving spouse (or de facto including a same sex partner), any child of the deceased, a financial dependent of the deceased or a person who had an ‘interdependency relationship’ with the deceased. Depending on the circumstances of the dependent, the benefit may be paid as an income stream as opposed to a lump sum.

Binding Death Benefit Nomination (BDBN)

A BDBN removes the trustee’s discretion of who can receive the death benefits and the trustee is generally bound by the member’s choice of beneficiary unless the nomination is not valid. Generally the duration of a BDBN is only three years and needs to be renewed upon expiry. A Non-Lapsing Binding Nomination may be available. Restrictions apply as to who can be nominated.

Reversionary Beneficiary  

A Reversionary Beneficiary nomination applies to income streams in the payment phase of superannuation. A reversionary beneficiary is generally the spouse of the superannuant and it allows the spouse to continue to receive the benefit payments, adjusted in amount in some cases, under the same structure after the death of the superannuant. Depending on the income stream the reversionary may commute (withdraw as a lump sum) some or all the income stream.

When considering superannuation as part of your estate planning you should take into account issues such as taxation, Government Income Support and accessibility consequences. For complex estate planning issues, legal and financial advice should be sought. See our related article ‘Estate Planning – More than just a Will’.

The information in this article does not constitute or imply financial advice. We recommend that you seek professional financial advice and/or seek clarification from any relevant government department, legal representative or licensed financial services provider before making financial decisions.

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National Seniors members can access free independent financial information from the National Seniors Financial Information Desk (FID).  Call us now on 1300 020 110. FID is an independent, confidential service funded by National Seniors Australia that aims to improve the investment information available to older Australians. Their role is to arm people with up-to-date independent information that will assist them in making those big decisions prior to and in retirement.

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