Who is your super beneficiary?

Who's your super beneficiary?

With superannuation now becoming a compulsory part of life, many people soon find they have significant amounts in their super growing at 9.5% per year - the minimum compulsory amount all employers are required to withhold from your income and deposit into your super account, for your retirement.

In reality, if you passed away today, the value of your super account could be significantly higher because of a ‘hidden’ life insurance component.

The account balance shown on your annual super statement can be misleading - if there's a life insurance policy held in there too.

So, what happens to a person's super funds (and any insurance payout) if they die? That's probably best shown by what happens when normal life becomes complicated.

Read in this article:

Case Study: In August 2017, the news reported a tragic loss of a young military serviceman Mr. Daniel L who suddenly died aged just 40.  His girlfriend of nine months received the bulk of his military super fund balance. Daniel’s two children from a previous relationship missed out on receiving most of the superannuation as he hadn't nominated them as his superannuation beneficiaries.

Background

Daniel was employed in the military as a mechanic. One day while surfing with friends, he complained of chest pains, later collapsed and died aged 40.

• His former partner to his two children had been named as the sole beneficiary to his Will and so thought their financial future was provided for
• She was shocked to learn the majority of his military super fund - amounting to $451,500 (a combination of super plus super life insurance) - would not be distributed under his Will
• The super payout would be paid directly to his new de-facto of just nine months, leaving only a small provision for his children to his previous partner

How did this happen?

In coming to this decision, the Trustee of the Military Super Fund relied on a past statutory declaration made by Mr L in August 2014, declaring ‘the woman was living with him as his "interdependent partner", which was supported by evidence of joint bills, joint banking activity and an employer's record accepting the information supplied’ as true.

• The family tried to appeal the Trustees decision not to distribute the balance of the super fund to the Will
• The appeal was rejected and the original super funds' decision was upheld
• His new defacto was formally recognised as being the lawful person Daniel intended to receive his super

Who got paid what?

• His new de facto was awarded ¾ of the super fund balance - $352,170
• Each of his daughters to a previous relationship, receiving just ¼ - $49,664

Lessons to learn

When it comes to deciding who can get the balance of your super fund (and its insurances) when you die, there are two clear procedures in place;

1. The law states how to formally nominate who gets your super.
2. If you don't formally make that nomination, the Trustee of your Super Fund will decide who gets the balance of your super fund.

What could he have done?

If Daniel had completed a binding death benefit nomination, then it may have been a different story as to who received his superannuation.

Have you nominated a super beneficiary?

Many of our clients are surprised to learn superannuation doesn’t automatically form part of their estate but is considered a formal ‘non-estate asset’ - therefore not automatically covered by their Will.

What does this mean for you?

You cannot gift a superannuation death benefit payout in your Will.

You need to have separate documented instructions in place:

• a valid binding superannuation death benefit nomination lodged with your  superannuation fund, and
• you've complied with all the legislative requirements to make it binding on the Super Fund Trustee.

So what if I'm the trustee of my own super fund and have an SMSF?

There are various special considerations for people with Self Managed Super Funds, especially for stepfamilies. (You can read about them here).  Some older SMSF Trust Deeds need updating to enable a binding nomination to be made, and still others are flawed in their wording referring to a 'Prescribed Nomination Form' that was never in existence anyway.  

Don’t risk a DIY mess (or keep putting it off till later).

Get good financial advice. There are some things you shouldn't leave for a bout of DIY. People often neglect to pay as much attention to super as their Wills.

At Sapience we can help you deal with your superannuation and other property that you cannot dispose of in your Will - such as assets held as joint tenants, trusts or SMSF.

Our legal partners are the recognised experts in this field and you can access their significant legal expertise through us too.

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.