What happens to your superannuation if you die?
What happens to your superannuation if you die? This is an important question, even if it is a little morbid. The answer is that it depends on what your instructions are.
While most of us don’t want to consider our own death, the stark reality is that it’s going to happen, whether we like it or not. And we don’t know when. It’s necessary to be prepared.
Superannuation is a complex asset and it’s important that you’re clear on what your intentions for it are, if you die.
Because superannuation is usually one of your biggest assets, accumulated over many years of being in the workforce, it’s important to consider who you want to benefit from it if you pass away.
Superannuation is not considered in your will
Contrary to popular belief, superannuation is not considered an ‘estate asset’ – it is not bundled up with the rest of the things you have accumulated over the course of your life, like property, cars, investments and savings. Therefore, superannuation needs to be dealt with separately from your will.
The reason for this is that your super is held for you, in a trust, by the trustee of your super fund. It is governed by superannuation law.
Under superannuation laws, only your spouse (including a de facto partner), children, someone financially dependent on you, or someone with whom you are in an interdependent relationship, (someone you live with and is dependent on you, or whom you care for) can receive your super directly.
Make sure your superfund knows your intentions
If you want your superannuation to go to someone else – an ex-spouse, a parent, charity, a sibling or relation, then you must specifically document these wishes.
This is why it is so critical that you keep your superfund instructions current. You have three choices:
A binding nomination that satisfies all legal requirements, ensures that the trustee of the super fund must pay your super to the beneficiaries you have nominated, and in the various proportions that you have specified. You are required to review your binding nomination every three years.
2. Non-binding nomination
If you make a non-binding nomination, the trustee will usually act on your nomination but will have the final say if there are competing claims on your superannuation.
3. No nomination
If you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which beneficiaries the money should go to.
Also, super laws decree that a ‘spouse’ is someone you live with in a domestic arrangement, as a couple. There is no time frame associated with this relationship under super laws. So, someone you’ve lived with for only six months could claim your super upon your death, and it’s important to be aware of this, especially if it is not your intention that they do so.
Although a superannuation death benefit is usually paid as a lump sum, income streams can be paid in certain circumstances, for example, if the beneficiary is under 18 years.
Get professional advice
There are also tax implications as well as other considerations, particularly if you have a self-managed fund. See a professional financial planner to help you understand how to make your intentions clear.
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