Twenty-three-year-old, Ashleigh Petrie nominated her mother as the sole beneficiary of her super. However, Ashleigh’s 63-year-old fiancé was successful in claiming her full super balance after she died in a car accident. Ashleigh was in a relationship with her fiancé, Rodney Higgins for only 7 months (living together for four of them).
This story highlights the pitfalls and limitations to super fund death benefit nominations.
Superannuation doesn’t form part of your will
A super fund is a type of trust. That means that no one has entitlement to any super funds until the trustee makes an election to distribute monies i.e. pay a super benefit. As such, superannuation does not (initially) form part of your estate and therefore is not covered by your Will.
The trustee of your super fund must decide who is entitled to your super balance including any life insurance benefits (if the policy is held inside super).
Different types of nominations
There are two types of death benefit nominations:
Binding nominations
As the name suggests, trustees are bound to follow the superannuant’s instructions as long as they comply with the super laws (SIS Act). Binding nominations can either be ‘lapsing’ or ‘non-lapsing’. Lapsing nominations are valid for up to three years but can be changed at any time. However, a lapsing nomination cannot be updated if the superannuant loses capacity (although their attorney may be able to update it).
Non-lapsing nominations do not need to be updated each year and therefor can offer a greater level of certainty for succession planning.
Non-binding nominations
Non-binding nominations provide guidance to the trustee as to how to pay a death benefit. However, ultimately, the trustee still has discretion as to who to pay a benefit to.
Reversionary nominations
If a person’s super is in pension phase, some super funds allow reversionary nominations. A reversionary nomination instructs the fund to continue paying a super pension to their nominated beneficiary such as their surviving spouse. Reversionary nominations offer few financial planning advantages.
Who can you nominate?
According to the super la
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