Superannuation Death Benefits – importance of making binding death benefit nominations

Most people these days will have a superannuation fund.

However, not everyone is aware that if you die, whilst you still have superannuation assets, that the death benefits from your superannuation fund are not automatically distributed under your Will.

Instead, the trustee of your superannuation fund must either:

• Follow your directions - where you have made a valid and binding death benefit nomination; or

• Make their own decision as to how to distribute your death benefit – if you have not made a binding death benefit nomination.

As you can see, if you do not make a binding death benefit nomination, then it will be the Trustee of your Superannuation Fund who decides who will receive your superannuation death benefits when you die.

Leaving the decision up to the trustee of your Superannuation Fund can create some unusual outcomes, particularly if you have a blended family or if you have cared for extended members of your family. For example, the Trustee of your Superannuation fund might decide to pay some or all of your death benefits to a grand-child whom you have been supporting  or perhaps to an estranged child, instead of to your surviving spouse.

However, deciding to make a binding nomination can also be complicated by the fact that leaving your death benefit to certain beneficiaries (such as your spouse) might result in a better tax outcome as compared to leaving the same money to your adult children.

If your adult children are paid your death benefit directly, then the taxable component of those benefits will be taxed at 15% and the Medicare levy will need to be paid. Therefore consideration should be given as to whether it may be more advantageous to nominate your spouse (if you have one) to receive the superannuation benefits.

Another option is to make a binding nomination in favour of their Legal Personal Representative, so that the death benefits are paid to your estate and then distributed via your Will. In such a case, your estate will not pay the Medicare levy, but any adult children who receive the super death benefits may still be taxed on the taxable component of your superannuation.

In short, the issues surrounding nominations in respect of death benefits are complex and we therefore recommend that you obtain legal and financial advice in respect of this issue.