Your superannuation benefit is not an estate asset. Therefore, if you wish to control how your superannuation benefits are controlled, you should consider a death benefit nomination. This type of nomination instructs the trustee of the superannuation fund as to which of your dependents (including your spouse, children, financial dependents and your legal personal representative) should receive funds from the benefit, and how.
The nomination needs to be properly executed by two witnesses that are not beneficiaries to your superannuation benefit. There are a number of different types of nominations:
- Non-binding – as the name suggests, does not bind the trustee to distribute your superannuation benefit in accordance with your wishes
- Binding – does bind the trustee, but lapses after three years
- Non-lapsing – does bind the trustee and continues into perpetuity
It is important to review your nomination from time to time as your personal circumstances change. Superannuation funds provide for retirement but it is also a vehicle for life insurance policies. A significant life insurance benefit makes it even more important that you make your wishes clearly known to the trustee of the superannuation fund.
Needless to say, if you choose to have a superannuation benefit go to and be administered by your legal personal representative, it is absolutely critical that you have a current and detailed Will, all relevant Powers of Attorney and other estate planning structure in place.
Superannuation death benefits are paid out tax-free. You should think about how you want your dependents to be assisted from your superannuation benefit. Is it lump sum amounts or income streams? Lump sum amounts may help in discharging debt for example. However, once the benefit is paid out, the money is exposed to creditors and predators. An income stream permits some level of ‘control’, whereby the benefit is maintained in a trust environment and there may be tax advantages, such as tax rebates, in doing so as well. The superannuation fund’s trust deed determines how much flexibility you have in deciding between lump sum and income stream payments.
If you have multiple superannuation fund memberships you need separate nominations and instructions for each membership. To reduce the complexity of your affairs and the stress of dealing with multiple financial institutions, you may want to consolidate your superannuation memberships into manageable form.