What happens to your superannuation when you die?

Why does superannuation matter?

Every Australian employed by a company has superannuation paid on their behalf into a superfund at a rate of at least 10.5 per cent of the workers’ income, to help save for retirement.

The money starts to add up quickly. According to the Association of Superannuation Funds of Australia, the average Australian has $147,425 in superannuation.

In total Australians have a combined $3.3 trillion held in superfunds, according to the Australian Prudential Regulation Authority.

For the year ending in September 2022, just over $88 billion was paid out, including $40.5 in pension payments and $47.7 billion worth of lump sum payments. Some of those lump sum payments would have been paid out as death benefits, going to the beneficiaries of those superannuation holders after their deaths.

Conor Sheridan, a senior associate in Colin Biggers & Paisley’s wills, estates and succession planning team, said the large amount of money held in superannuation meant it was often the second-largest asset many clients held, behind their real estate.

“For many, superannuation is their largest or only significant asset, particularly where life insurance is attached,” he said.

Despite that, Sheridan said many people failed to properly plan for what happened to their superannuation in case of their death.

“[It is] often an afterthought or overlooked entirely, with many clients assuming their super is automatically part of their estate to be distributed in accordance with their will,” he said.

“While this common misconception is easily dispelled, it’s only the starting point.”

What happens to your superannuation when you die?

Because superannuation is not necessarily considered part of your estate, Industry Super Australia’s director of advocacy Georgia Brumby said it was important to tell your fund who your beneficiaries were.

“Without clear instructions, the fund trustee will use their own legal discretion, which may not exactly reflect your will and can be at risk of claims by other beneficiaries,” she said.

Sheridan said even if a person’s will states their intention for their estate to be split between friends, without the proper steps being taken, the superannuation fund trustee cannot legally provide the money to anyone but a dependent.

According to the Superannuation Industry (Supervision) Act, there are only three types of people who can be nominated as beneficiaries. They are dependents, including spouses and children; people with whom you had an interdependency relationship where there was a close personal relationship, you lived together and they provided financial support to each other; and a legal representative.

A legal personal representative is the executor of the will or estate administrator or someone who has enduring power of attorney. This third option is important for people who want their superannuation to be paid to someone other than a partner or child.

What if you want to leave your superannuation to someone else?

For a super fund to recognise a legal personal representative, people need a valid binding death benefit nomination, Sheridan said.

The superannuation death benefit will be paid to the representative, who can then distribute the superannuation money in the way the person intended, as stipulated by a will, he said.

It means the superannuation money can go to friends, siblings, or even a cat shelter or art gallery, depending on their final wishes.

Even if people legally nominate someone to receive their death benefit, it is important to note this is not a set-and-forget situation.

To be valid, the death benefit nomination needs to be updated every three years. Brumby pointed out that people’s life circumstances can also change, so keeping their death benefit nomination up to date was important.

“Nominated beneficiaries should be kept up to date, especially after big life events – like marriage, divorce or separation, having children or the death of a relative – to avoid additional stress for your friends and family in the event of your passing,” she said.

 

CREDIT: Original article written by Rachel Clun for The Sydney Morning Herald

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