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How to ensure your savings benefit your loved ones

This article shows with examples why it is so important to plan ahead to control your superannuation when you are no longer there to do it.

Most of us work hard to save for our retirement, and thanks to tax concessions and compulsory contributions, superannuation often forms a large part of retirement savings. But it’s essential to understand who controls where your super goes if you pass away and how to ensure your loved ones receive the inheritance you want them to have in the most effective way.

It’s a common misconception that you can include your superannuation as part of your Will. However, this is not the case, and you need to take action before you pass away to make it possible.

Here are a few key things you need to consider if you want to keep control of your superannuation benefits.

Nominate a beneficiary

The first thing to decide is who should inherit your superannuation savings and how—for example, your spouse, children, charity, friends, or a combination of these.

Once you have made this decision, it is important to formally nominate a beneficiary or beneficiaries. However, you must make sure the superannuation rules allow you to nominate the person or people you would like to receive your savings, and then you must consider the consequences of the choice. Remember that not all nominations are the same, and Wills can be challenged.

Anyone can nominate their spouse and/or children as beneficiaries as they meet the allowable definitions under the superannuation rules. Wanting to leave all your superannuation to a friend or favourite charity can’t be done this way because they won’t meet the relevant definition of a beneficiary. Instead, you can nominate your legal personal representative as a beneficiary, meaning that benefits are paid to your executor and distributed in line with your Will. But that means you need a good, up-to-date Will that aligns with this nomination: having one without the other is no good.

Suppose you don’t have a nomination in place, an invalid nomination, or your fund doesn’t allow nominations. In that case, the Trustee will decide who gets what, how much, and how. This can be slow and cause unnecessary strain on your loved ones at a time when they are already distressed.

What about possible tax implications?

Superannuation death benefits are taxed based on the type of beneficiary receiving them and the tax status of the components of the death benefit. Tax can be as high as 30% plus Medicare for an adult child and a fund with some untaxed elements, or it can be 0% if the beneficiary is your spouse or dependent child. Knowing what tax applies is vital when choosing a beneficiary or selecting the percentages left to different beneficiaries. For example, one child could get a tax-free benefit, while another could have tax applied, so percentages may need to be adjusted to account for that.

What are binding vs non-binding nominations?

Where a super fund allows it, a binding death benefit nomination obligates the trustees to make the superannuation payments in line with the nomination regardless of the Will, whereas a non-binding nomination is like a polite request asking the trustees to make the payment in the way you would like, hence, binding nominations usually offer more certainty. Still, they can lapse, or circumstances change. It is essential to know it is not a simple set-and-forget option, and regardless of the type, all nominations must be regularly reviewed – particularly if you divorce, your children become adults, or your circumstances change.

What should you do?

Ideally, call your financial adviser and/or solicitor (or estate planner) to ensure that you have the right nominations in place and a current, up-to-date Will that aligns with these nominations. That way, you can be as sure as possible that your loved ones are provided for in the way you want them to be in the event of your death.

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