Imagine working hard your entire life, building a substantial nest egg in your superannuation fund, only to have it end up in the hands of someone you never intended – perhaps a distant relative instead of your spouse or children. This nightmare scenario is more common than you think, and it all boils down to one tiny, often overlooked word in your super paperwork.
It's a chilling thought, isn't it? You could have a six-figure sum earmarked for your loved ones, but due to a simple oversight, it could bypass them entirely. According to some reports, a staggering number of Australians – potentially over 6.5 million – may unknowingly be at risk of losing control over who inherits their superannuation benefits.
So, what's the culprit? Tanya Herbertson, a wills and estates planning expert and partner at MV Law, sheds light on this crucial issue. She points out that superannuation assets are treated distinctly from other assets like property or savings accounts, which are typically governed by your will. But here's where it gets controversial... Without a specific type of nomination called a 'binding nomination,' your superannuation death benefit remains outside the control of your will, operating under its own set of rules.
"Many people are simply unaware of how superannuation death benefits actually work," Herbertson explains. "Unless you complete a valid binding nomination, the super fund trustee has the ultimate say in who receives the money." And this can lead to unexpected – and often unwanted – outcomes.
Now, you might be thinking, 'Okay, I'll just fill out a nomination form.' But be warned: there's a crucial distinction. You can also sign a 'non-binding nomination.' And this is the part most people miss: that seemingly insignificant 'non' makes all the difference.
A non-binding nomination isn't legally enforceable. It serves as a guide for the trustee, but they aren't obligated to follow it. Whether a nomination is binding or non-binding depends on the specific form you complete and the rules of your super fund. While a non-binding nomination might seem easier initially, binding nominations require specific forms, often need to be witnessed, and, depending on your fund's rules, may even need to be renewed every few years to remain valid. If you don't have a valid nomination at all, the trustee's discretion takes precedence.
Herbertson notes that many people either don't make any nomination or opt for the non-binding variety, assuming that the trustee will automatically distribute the death benefit to their closest relatives. "With super, the trustee has the discretion to pay your remaining super, or 'death benefit,' to whomever they decide within certain eligibility rules," she says. "In most cases, the trustee will likely make a decision you'd expect, such as paying your children or spouse. But I’ve seen them do some unexpected things," she cautions.
She recounts a specific instance involving three surviving children and no spouse. "We assumed the benefit would be split equally among the children. Instead, the trustee awarded the largest share to the youngest child, a smaller share to the middle child, and the least to the oldest, arguing that the youngest child had the most future expenses ahead of them." This highlights the potential for subjective interpretations and the lack of certainty with non-binding nominations.
Family dynamics can further complicate matters. "I've seen cases where the deceased had both a legally married spouse and a de facto spouse simultaneously, which can create a real mess," Herbertson explains. "Disputes often arise when trustees decide to pay the death benefit to someone unexpected, and non-binding nominations are practically useless in these situations."
If a dispute arises, you have a 28-day window to appeal the trustee's decision. If the trustee maintains their position, a further appeal can be made to an external body. However, this can lead to lengthy and expensive legal battles, ultimately draining the funds intended for your loved ones.
So, what's the solution? Herbertson advocates for binding nominations whenever possible. "I always advise my clients to put a binding nomination in place. It eliminates the trustee's discretion and provides certainty that your hard-earned super will go to the people you want to receive it," she asserts.
It's crucial to remember that only certain individuals qualify for your nomination. For example, if you're single, you can't nominate a friend. However, you can make a binding nomination to your estate, allowing your will to dictate who ultimately receives the funds. This provides a workaround for those with more complex wishes.
Ultimately, the responsibility lies with you to ensure your nomination is valid. "Your fund manager isn't obligated to inform you if you've made an error," Herbertson warns. "It will likely only surface after your death. So, it's definitely worth seeking professional advice. If you're preparing a will, your solicitor should also review your superannuation nominations with you and advise you on the best way to handle them as part of your overall estate planning."
Do you have a binding nomination in place? Has this article changed your perspective on how to manage your superannuation death benefits? Share your thoughts and experiences in the comments below. Do you think trustees should have so much discretion, or should the rules be stricter to ensure your wishes are honored?
For more information and expert advice, visit MV Law at https://www.mvlaw.com.au/?gadsource=1&gadcampaignid=21175852207&gbraid=0AAAAACWLYH2fKxJ0tCuDhdiGaMW4Ri2F7&gclid=CjwKCAiA0eTJBhBaEiwA-Pa-he5bM8uapqjYo1dAf-G3rFku2QWRYd5mlRJVxkHeRlDLsQBcpggiZhoC29AQAvD_BwE.
