You could have six figures in super and no say in who gets it. Photo: monkeybusiness.
Imagine this: you die, leaving behind six-figure savings in super, but a distant relative — not your partner or kids — ends up with the payout.
It’s possible and has happened more than once.
It comes down to a tiny prefix in your superannuation paperwork that most people would not know to look for, according to wills and estates planning and disputes expert and MV Law partner Tanya Herbertson.
“Superannuation is treated differently from other assets like property, bank balance and car, which are dealt with in accordance with your will, if you have one. But without what’s called a ‘binding nomination’ for your super, your super or death benefit isn’t part of your will — it lives by its own rules,” she says.
“That’s problematic because lots of people are not aware of the way superannuation death benefits work. Unless you make a valid binding nomination, the super fund trustee will decide to whom they will pay the money.
“It is also an option to sign a ‘non-binding nomination’ — and that ‘non’ makes all the difference.”
Non-binding nominations are not legally binding. A super nomination doesn’t inherently default to binding or non-binding; it depends on the type of form you fill out and your fund’s rules.
A non-binding nomination can sometimes be simpler to achieve than a binding nomination, which requires specific forms, witnessing and, depending on the super fund, may require renewal every three years to remain valid. If you make no valid nomination, the trustee’s discretion once again kicks in.
Ms Herbertson says many people will not make any nomination or opt for a non-binding nomination because they assume that when they die, trustee discretion will automatically result in their death benefit going to what they see as an obvious next of kin.
“With super, the trustee of your fund manager has the discretion to pay your remaining super or ‘death benefit’ to whomever they decide (within eligibility boundaries). In most cases the trustee will do something expected, like decide to pay your children or spouse,” she says. “But I’ve seen them do some unexpected things.”
MV Law’s Tanya Herbertson is not a fan of non-binding nominations and for good reason. Photo: Michelle Kroll.
Ms Herbertson recalls one case where there were three surviving children and no spouse.
“We assumed all children would be paid equally, but instead the trustee awarded the greatest amount to the youngest, less to the middle child and less still to the oldest, on the basis that the youngest child had more general costs ahead of them in life,” she said.
The water gets murkier when there are complex family dynamics or compositions at play.
“I have seen cases where the deceased had a legally married spouse and a de facto spouse at the same time, and that can get tricky,” Ms Herbertson says. “I’ve seen disputes arise many times where a trustee decides to pay a death benefit to someone unexpected and non-binding nominations are pretty useless in these cases.”
Should a dispute arise, there is a 28-day window to appeal to the trustee. If the trustee holds its position and you wish to appeal a third time, the matter goes to an external body and can be tied up in costly litigation for years.
Ultimately, the loved ones involved foot the bill.
Regardless of whether your death benefit seems straightforward or not, Ms Herbertson’s position is clear.
“I always advise my clients to get a binding nomination in place. It removes that discretion and provides certainty that your hard-earned super will go to the people you want to receive it,” she says.
Bear in mind, only certain categories of people qualify for your nomination. For instance, if you’re a single person, you can’t nominate your best mate.
If you want to open this up, you can make a binding nomination to have the trustee pay your death benefit to your estate, so you can then say in your will who you want to receive those funds.
Either way, it’s on you to ensure your nomination is valid.
“Your fund manager is under no obligation to inform you if you have done something wrong. Most likely, it will only come to light after you die. So it’s definitely an area worth seeking professional advice on,” Ms Herbertson warns.
“If you are having a will prepared, your solicitor should also be reviewing your superannuation nominations with you and can advise you on how best to deal with that as part of your overall estate planning.”
For more information, visit MV Law.
