Dear Aunt Sue
What happens to Superannuation, after someone dies? Is it just a part of the estate? I’m asking because my partner is now terminally ill, and as she looked after all the household finances, I’m trying to get my head around it all. I know she is a fan of your site.
>Peta – Lyneham, ACT
I’m so sorry to hear that your partner is gravely ill, and yes, the practicalities of life don’t take any notice of such situations – they still go on.
Many people are unaware that superannuation is not covered in their will as it is not technically an asset that you own. Super money is held in your name in the form of a trust.
What normally happens is that your super fund Trustee will pay the death benefit to one or more of your dependents. This can include: your spouse, children, people you have an interdependent relationship with (including de-facto partners or same-sex partners), as well as other people who financially depend on you such as an elderly relative who lives with you. In some circumstances, the Trustee can overrule your nominations and opt for someone not nominated by you (eg to account for a new family member), which might be a positive move. But they can just as easily nominate to give it to an ex-spouse because you never got around to updating your beneficiaries. If you don’t nominate anyone, the Trustee will choose for you, which may cause delays and headaches for your family.
The other important thing to know is the difference between ‘binding’ or ‘non-binding’ nominations.
A binding nomination leaves your Trustee with no choice when it comes to who gets your death benefit. So, you get to choose between one or more dependents, or you can choose “Your legal personal representative”, who must pay out the money according to your will. If you decide to have a binding nomination, you need to update it with family changes! Another important thing to note is that for some super funds, binding nominations are only valid for three years. If your binding nomination is expired and not renewed before your death then your benefits will be paid to your estate, or via the discretion of the Trustee.
A non-binding nomination helps guide the Trustee on who gets the death benefit, but ultimately, they have the final say as to who receives it. This means that they must determine who is dependent on you – and they don’t have to follow the wishes you’ve laid out in your will. They may decide, for example, that your spouse or older children are not dependent on you because they can provide for themselves. But to be fair – you are leaving this job in capable hands. The trustee will use common sense and will know the way to settle the distribution fairly.
Other rules can apply in some super funds, such as some government funds where death benefits can only be paid to certain family members. It is important to check out your own funds’ rules around these matters.
The death benefit (from Super) that your nominee will receive can be worked out by this basic formula: your super account balance + any life insurance within the Super = death benefit amount.
The last thing to mull over is that if you choose to leave your super to someone who is not a spouse or a financial dependent then it can be taxed at a rate of 31.5% – so be careful who you nominate.
I hope this clarifies everything you need to know, Peta. All my very best wishes, in this sad time. Remember to look after yourself, too.
Have fun and keep smiling – Aunt Sue