Superannuation can often form a significant part of an individual’s wealth. Therefore, the transfer of such an asset upon their death can potentially cause dispute among the deceased’s family and potentially others.
Unlike assets owned in an individual’s personal name, superannuation does not form a part of their estate when they pass away. Instead, it can pass directly to a beneficiary rather than via a Will. However, this depends on who the beneficiary is and how the nomination was made.
Under superannuation laws, a nominated beneficiary must fall within at least one of the following categories of dependants:
- Spouse (includes defacto or same sex but not former)
- Financial dependant
- Child of any age (includes step or adopted)
- Legal Personal Representative of the deceased member
- Interdependent person
Broadly speaking, beneficiary nominations can be binding or non-binding.
Binding nominations compel the trustee to act on the deceased member’s instructions (provided the nomination is valid). While the trustee must pay the beneficiaries nominated in such a manner, the form of the payment is still left to the discretion of the trustee.
If a deceased individual’s family is blended or has a history of conflict, a binding nomination may be the most appropriate option, as it ensures that the designated beneficiary is provided for according to the deceased member’s specific wishes.
A non-binding nomination is not compulsory for the trustee to follow, and the trustee would use this nomination as a guide in paying out the member’s balance upon their death. Non-binding nominations can provide more flexibility for planning to achieve the most tax effective outcome, especially when the beneficiaries receive different tax treatment.