For many of us, retirement may seem a long way off and our superannuation may not get the attention it deserves. The reality is that in most instances, super is second only to the family home as your biggest asset, (and in some cases it may even be number one).

That makes it essential to take an active interest in it, but, it is not only the retirement aspect of super that deserves our attention.

Many people have not considered what happens to their super if they die prematurely. It’s not a pleasant thought, but such an event can cause a lot of unnecessary stress for those left behind, so it should be dealt with. The assumption by many is that whatever has been built up in our super fund over the years will automatically be paid out to whoever is surviving, but it is not always that simple.

Avoiding disputes and ensuring a smooth transition

No doubt most people have a fairly good idea as to who they would like their super benefits to go to if they die, but it takes more than good intentions to make this happen, it is something that needs specific attention to ensure that loved ones are not unnecessarily delayed in obtaining the cash or burdened with the extra worry at a difficult time in their lives”.

The goal is to have as smooth and quick transfer as possible, without any ambiguity over who is entitled to payouts from the deceased’s super fund. Money issues can often drive a wedge between families and can magnify personal disagreements out of proportion, which is another reason to get the paperwork in order as soon as possible.

What many don’t realise is that control of super monies after the death of a fund member will initially pass to the trustee of the super fund. In most cases, where dependants can easily be identified, the trustee will pay funds to them, but without express written instructions from you, it may take quite a deal of time for the money to actually come through. This could leave your family without adequate cash resources just when they need it most.

Make a beneficiary nomination

The key is to make sure you complete a nomination form to specify who you want your super paid to. There are two common types of nomination available. The most definitive and direct way to ensure your chosen dependants get your super money quickly is to make what is called a ‘binding nomination’. This is a simple form that may only take a minute or two to complete, but can save your loved ones a lot of angst. The form allows you to nominate your spouse, your children or any other permitted beneficiary and because it is binding, the trustee is obligated to pay the money to the nominee unless it is invalid. You may also choose to make a binding nomination to have your super fund proceeds paid to your legal personal representative, who will then distribute the funds according to your will.

One alternative is to make a non-binding nomination. In this case, your nomination form will indicate who you want money paid to, however, there may be no obligation on the trustee to comply with this, they have the right to make the final determination. This is an especially important issue if you want money to go to someone who is not a dependant. The trustee may overrule your non-binding nomination if there are other dependants involved.

An important point to note if you are making a binding nomination is to consider the needs of all your dependants when it comes to distributing your assets. The trustee cannot overrule a valid nomination, so if some dependants have inadvertently been left out then they may not benefit the way you intended.

There is a need to keep your binding nominations up to date. It may come as a surprise, but a binding nomination is not an indefinite one. In most cases, your wishes need to be renewed or re-confirmed every three years, otherwise your nominations may lapse. Keep in mind that if funds are not left to a person who is a dependant for tax purposes such as a spouse or child under 18 years old then there may be up to 31.5% tax liability and Medicare levy on the payout figure, which a financial adviser can discuss with you in more detail.

Too much money to leave to chance

The amounts of money involved can be very large, making it a very important financial decision. There may be life insurance benefits held in the fund, as well as super accumulation from personal and employer contributions. The last thing you want to happen is for your family to have those valuable funds languishing in limbo, waiting for the trustee to make decisions. In an age where divorce and blended families are common, the situation can become quite complex and this will delay the trustee until they are satisfied all avenues have been explored. All the more reason to make sure you have a current nomination completed.

Need more information?

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RI Advice Group Pty Limited (ABN 23 001 774 125), Australian Financial Services Licence 238429. This article does not consider your personal circumstances and is general advice only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.

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