Superannuation plays a pivotal role in securing financial freedom during retirement for Australians. However, what happens to your superannuation balance when you pass away? That’s where superannuation death benefits and nominations come into play. By understanding these concepts, you can ensure your super funds are distributed according to your wishes, providing peace of mind for you and your family.

What is Superannuation and Why Does It Matter?

Superannuation, commonly known as “super,” is a long-term savings plan designed to fund retirement in Australia. Mandatory contributions made by employers, combined with voluntary contributions, grow over time and are generally inaccessible until you retire. Given its importance in retirement planning, it’s essential to ensure the funds in your super are handled appropriately, even after your passing.

 

What Are Death Benefits in Superannuation?

Superannuation death benefits refer to the remaining funds in your super account that are paid out to your beneficiaries upon your death. They can be distributed in two primary forms:

• Lump-Sum Payouts: A one-time payment of the total account balance to the selected beneficiary or beneficiaries.

• Income Streams: Regular payments made to dependents, often chosen to provide ongoing financial support.

Beneficiaries of super death benefits can include your spouse, children, legal representatives, and individuals who are financially dependent on you. Without proper planning, however, the distribution process can become complicated.

 

Why Binding Death Benefit Nominations (BDBNs) Matter

A Binding Death Benefit Nomination (BDBN) legally obligates the trustee of your super fund to distribute your death benefits to the nominated beneficiaries, ensuring your wishes are honoured. Without a valid BDBN, the trustee gains discretion over how the funds are distributed, which may result in outcomes that aren’t aligned with your intentions.

Key Differences Between Binding and Non-Binding Nominations

1. Binding Death Benefit Nominations:

• Legally binding on the trustee.

• Must be renewed every three years unless the fund allows for non-lapsing nominations.

• Offers greater control over who receives your superannuation benefits.

1. Non-Binding Death Benefit Nominations:

• Serves as a guide for trustees but is not legally binding.

• Gives the trustee discretion to determine the allocation of funds, potentially leading to disputes among beneficiaries.

• Often used when the holder does not have updated or specific preferences.

Understanding the difference is crucial for ensuring your wishes are carried out seamlessly.

 

How Superannuation Laws Impact Death Benefits

Superannuation is governed by strict regulations, particularly regarding the allocation of death benefits. Trustees must adhere to Australian laws, which dictate that death benefits can only be paid to dependents (as defined by the law) or to your estate. Legal dependents include:

• Your spouse (including de facto and same-sex partners).

• Your children (including stepchildren).

• Individuals financially dependent on you or in an interdependent relationship.

If no valid nominations are made, the trustee will attempt to distribute the funds fairly, but this can lead to delays, conflicts, or unintended parties receiving the benefits.

 

Reviewing and Updating Your Nominations

To avoid complications, it’s essential to review and update your Binding Death Benefit Nomination (BDBN) regularly. Here are some practical tips:

• Check for Lapsing Rules: If your super fund uses lapsing BDBNs, make sure to renew them every three years.

• Reflect Life Changes: Update your nominations after major life events such as marriage, divorce, childbirth, or the death of a previously nominated beneficiary.

• Consult Professionals: Work with financial advisors or estate planning experts to ensure your nominations align with your broader financial and estate plans.

• Verify Beneficiaries’ Eligibility: Ensure the individuals named are legally eligible to receive superannuation death benefits under Australian law.

 

Superannuation and Estate Planning

Superannuation death benefits are not automatically included in an estate unless specified in your nominations. This intersection underscores the need for comprehensive estate planning. Work with financial and legal advisors to integrate your superannuation strategy into your overall financial plan. Doing so will help avoid any misunderstandings or disputes, providing clarity and security for your beneficiaries.

 

Final Thoughts

Understanding and managing superannuation death benefits and nominations are critical steps in protecting your financial legacy. Thoughtful planning, especially with a Binding Death Benefit Nomination, ensures your super is distributed according to your wishes, offering security to your loved ones.

For Australians, a well-structured nomination can bring lasting peace of mind. Take action today—review your superannuation, consult a financial advisor, and ensure your nominations reflect your current circumstances. Your future, and your family’s, depend on it.

If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.

Explore more articles