Who gets my money when I die?

Posted by Bethany Shaw on 20 September 2016

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Understanding the difference between binding and non-binding nominations in your superfund

Are you confident that when you die you know exactly where your money will go? Many of us are unaware that it can be down to the trustees of our superfund who decide which of our dependants will receive our funds in the event of our death. 

Unless you have made a ‘binding nomination’ any of your dependants can claim rights to your money, but there are certain things to consider when choosing whether or not this is best for your situation.

Non-binding nomination

If you do not make a binding nomination the trustees of your superfund will distribute your funds in what they believe is the most appropriate and fair way taking into account who you nominated as your beneficiary/beneficiaries on your form. However, the trustees are not bound by your nomination/s. They will make inquiries and may look at your will, if you have one, and list all potential beneficiaries. The trustees act as justly and fairly as possible to ensure favourable outcome for all beneficiaries. Disgruntled beneficiaries may seek legal action to contest the trustees decision/s.

Advantages of non-binding

  • If you have forgotten to update your forms it will take into account a new spouse or child
  • Creates flexibility if your situation changes

Disadvantages of non-binding

  • Your wife/husband who are separated from (but not divorced)or children from a previous marriage may be able to access your money even if this is not your wish
  • You do not have complete certainty as to where your money will be distributed
  • Decisions made by the trustees can be contested

Any nominations made before December 1999 are non-binding. You can only override this if you update your form to a ‘binding nomination’.

Binding nomination

A binding nomination can be made by a superfund member to the trustee of their super fund which states exactly who should receive their benefit when they die.

Advantages of binding

  • You have the final say in who receives your money which removes uncertainty. This is especially important if you have a blended family
  • You can nominate who will be a beneficiary and what proportion they will receive
  • It is less likely to be challenged successfully by a disgruntled beneficiary

Disadvantages of binding

  • You need to remember to review and update regularly. A binding nomination lapses after three years so should be updated then
  • If your nomination is invalid such as not being signed properly, the trustees have the final say. This occurred recently where a member died and his lawyer had not witnessed his form properly
  • The trustee is bound to comply with the binding nomination, despite whether or not it is still appropriate

Who can be nominated?

Any of the following dependants can be nominated:

  • Current spouse or defacto
  • Children of any age (including adopted, stepchildren, ex-nuptial children and children of your spouse)
  • Financial dependants at the time of your death who live with you and you provide them with financial and domestic support and personal care 

You can also nominate your ‘Estate’ to receive your superannuation death benefits, which can be a more tax effective way of distributing this. If you do this, it is essential to have a will which states how you want your estate to do this.

It is very important to consider the needs of all your dependants and discuss these with your adviser.

Examples of when to use a binding nomination

  • If you have a blended family and want surety of distribution
  • If you have two children but only one is a member of your self-managed superfund. This way you can ensure both children will receive equal share
  • You have married for the second time and want your new spouse to receive the entire benefit. This stops children from the first marriage contesting

Why should you get AFRM involved?

We want all our clients to be aware of this process so you can make appropriate selections which we can then implement for you. We advise our clients to seek legal advice to ensure you’re your nominations give you the best estate planning outcome.

Contact your adviser now for a review to ensure your requirements are up-to-date. 

Please note, this information has been prepared by Australian Financial Risk Management Pty Ltd (AFRM) ABN 21 001 696 868. AFRM hold an Australian Financial Services License (AFSL) 237186. The information is for general purposes only and has been prepared without taking account of your objectives, financial situation or needs. AFRM recommends that you seek professional advice before acting on any information contained herein.