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For many, superannuation is their biggest asset along with the family home. Therefore, it’s very important to consider how superannuation interacts with your estate planning objectives.
A thorough financial plan should cover all bases and all possibilities. In a way, the final piece of the puzzle for an individual’s financial plan is their estate plan and how their assets are distributed in the event of their death, including their superannuation.
It’s amazing how many people I come across that either don’t have a superannuation death benefit nomination in place, have one that has expired or is invalid, or simply just don’t understand how it works.
A binding death benefit nomination/death benefit agreement is a written direction to the trustee of the super fund that sets out where you would like to direct your superannuation benefits upon death. A binding death benefit nomination binds the trustee of your super fund, whether it’s a Self-Managed Super Fund, industry or retail fund, to pay your superannuation benefits upon death to your specified beneficiary.
Does my will take care of my superannuation?
Many superannuants overlook nominations, thinking that their Will would take care of it, which is not the case. It’s often misunderstood that superannuation is a non-estate asset, which means that it is not dealt with by your Will unless you direct it to via a nomination.
Firstly, you can’t nominate just anyone as a beneficiary. You must nominate a Superannuation Industry (Supervision) Act 1993 (SIS) dependant that is one of the following:
Many people will often incorrectly nominate a sibling, parent or someone else that are not SIS dependants.
If you don’t make a nomination or have an invalid nomination, you open yourself up to the risk that your superannuation benefits may not be distributed according to your wishes as the trustee of your super fund would have discretion.
However, another option is to nominate your Legal Personal Representative (LRPR) as beneficiary. Your LPR is the executor of your will. If you nominate your LPR, your superannuation benefits would be distributed in accordance with your estate as prescribed by your will. Therefore, if you nominate your LPR, it’s very important that your will is up to date.
If you are in pension phase, you may elect for your pension to be reversionary to an SIS dependent. This would result in the pension continuing in the event of the death of the member. In many cases, this is the preferred course of action.
Some other points to consider
Lapsing or non-lapsing: A lapsing nomination only remains in effect for three years.
Binding or non-binding: A non-binding nomination does not bind the trustee to distribute the benefits to the prescribed beneficiary.
Tax Considerations: The Australian Tax Office places certain restrictions on who can receive death benefits tax-free. The tax status of death benefits also depends on the underlying tax components.
If you would like to discuss your estate planning affairs, it’s important that you seek specialist advice from your Financial Adviser and quite possibly specialist legal advice. Your estate planning solution should be tailored to meet your specific estate planning objectives.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.