Why you can’t leave your superannuation to your parents, even if you wanted to

Why you can’t leave your superannuation to your parents, even if you wanted to

Most people have some form of superannuation and it’s not long until the question gets asked, 'Who gets my Super if I die?'

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The law states super benefits may generally only be paid to one or more of the member’s dependents or their legal personal representative.

The Superfund Trustee may only pay a super fund death benefit to a non-dependant if, after reasonable efforts, they're unable to find an eligible dependant or legal personal representative.

So the first question is 'who is a dependant?'

This is especially important to our young tradie clients who are generally still living at home, haven’t partnered up yet, don’t have kids but who want to nominate their parents as beneficiaries for their superannuation and its life insurance cover (just in case they unexpectedly passed away).

"And the tough thing about adulthood is that it starts before you even know it starts, when you're already a dozen decisions into it"Robert Redford - Lions for Lambs

It’s your money, but just not yet

Superannuation is a special type of financial asset and while the money is yours, it’s effectively held in trust until, generally speaking, you officially retire or pass away. So being your money, you’d like to think you can leave it to whoever you want—but you can’t.

You can only leave it to a person who is legally classed as your superannuation dependant (described under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Who’s on the list of eligible dependents you’re allowed to nominate to get your super?

Broadly speaking, SIS Dependants are defined under the SIS Act as one or more of the following:

• the super fund member’s Spouse (legal or de facto)
• the super fund member’s Child (of any age),(includes an adopted child, a stepchild or an ex-nuptial child and a child born after the member’s death), and
• a person who the Trustee considers is wholly or partially financially dependent on the member at the time of death, irrespective of family relationship
• someone who the Trustee considers the member has an Interdependency Relationship with (generally someone with whom the member has a close personal relationship and lives with, and where one or each of them provides the other with domestic support and personal care)

A SIS Act Dependant also includes someone who is a dependant within the ordinary meaning of that term such as a person who may not be a spouse or child but who depends on the member financially.

The next question is who is my Legal Personal Representative? (LPR)

If you don’t have any SIS Dependants yet to leave your super fund balance to, the default catch-all-provision is called your Legal Personal Representative (or more commonly referred to as LPR). This is the person who will end up being in charge of distributing your estate after you’ve passed away. You might call them the appointed administrator of your Will.

You do have a will in place, don’t you?

If you're one of the 76% of Australians who don’t yet have a will, all your estate gets tossed into the same pile and then divided up according to the government's plans called The Rules of Intestacy.

• To make matters worse these Intestacy laws are not uniform Australia wide so it’s a bit of a hit-and-miss affair and can become a lot of heartache and sorrow for the modern Australian Family.

What to do if you don’t have a SIS Dependant but you still want to leave the balance of your super fund to your parents but they are still financially independent of you now?

It’s your money (even if it’s held on trust by a Super Fund) so take some time and get this sorted today.

• Get your Will in place (we can help you with that) even if only to make sure your superannuation (and any life insurance in it) goes to who you want it to.
• When you eventually partner up and get a SIS recognised dependant (remember, spouse, kids, relationships and dependants), nominate the ones you want to receive the balance of your super fund (and any life insurance it may hold on your behalf) to.
• Make sure your legal nomination is a written Binding Nomination – not a DIY job.
• Talk to us about our Binding Nomination Service where we’ll take care of all of this for you and keep in touch every two years to make sure your decisions (and dependents) haven’t changed.

Pro Tip: If you’re in an LGBT relationship and you want absolute certainty that your super fund balance (and any of insurances) go to your partner, get in touch with us to discuss a strategy to make sure this happens.

Ok so just tell me again - why can't my parents be my dependants under the super laws?

• The SIS Act makes the rules about your super
• Your super can only go to your SIS recognised dependants, otherwise, it's usually left to your estate to sort out and contest.
• A person’s parents are unlikely to meet SIS dependency rules under the interdependency or ‘ordinary meaning’ of a dependant.

If you want greater certainty about this issue, speak with us for a strategy.

What if I have my own SMSF?

If you don’t have an SMSF written binding nomination in place the SMSF trustee has the discretion to pay out your super balance as it sees fit. It’s your money so make your decisions about it and who can get it legally binding on the trustee and override the trustee's discretion.

Pro Tip: Many SMSF Deeds state a binding nomination can only be completed on the exact Nomination Form contained in the Deed. However, most Nomination Forms don't comply with the new law. Therefore, it is impossible for that SMSF to have binding nominations. Don't risk a DIY disaster.

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.