Death benefits – who can be a beneficiary under superannuation law
08 February 2018
An important consideration for your superannuation and estate planning is who you would like to receive your member benefits when you die. As administrators of self managed super funds we see a wide range of different people nominated to receive a members benefits on their death, from siblings, parents, grandchildren and other relatives to friends and neighbours. But its critical to understand who can and cannot be nominated under superannuation law.
A binding death benefit nomination form is an extremely important document. This is the document that instructs the trustee on who is to receive your superannuation benefits on death. If prepared correctly, the document is legally binding on the trustee and must be followed. An invalid nomination, however, can be ignored by the trustee and the decision as to where your benefits are paid left to their discretion.
A binding nomination made to a person who is not a dependant under the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) will invalidate the nomination, so it is extremely important to understand who is entitled to receive your superannuation benefits on death.
There are three categories of people who can be “SIS dependants” and can therefore be nominated on a binding death benefit nomination;
- A spouse
- A child
- A person in an interdependent relationship with the member
The definition of a spouse under superannuation law includes de facto partners and same sex spouses. Unlike tax law, superannuation law only applies to a member’s current spouse.
For SIS rules, a child includes;
- an adopted child, a stepchild or an ex-nuptial child of the person
- children of the person’s spouse
- a child of the person within the meaning of the Family Law ACT 1975.
The parent/child relationship for stepchildren is severed when the relationship between the natural parent and the step parent is dissolved i.e. on death or divorce. In these cases, step parents are therefore unable to leave their superannuation benefits to their step children as they will no longer meet the definition of a child. They may be able to qualify as having an interdependent relationship at the time of the member’s death however.
If you wish to pay death benefits as an income stream to a child the following must also apply;
- The child must be less than 18 years of age; or
- Being 18 or more years of age:
- Is financially dependent on the member and less than 25 years of age; or
- Has a disability of the kind described in subsection 8(1) of the Disability Services Act 1986.
- Interdependent relationship
According to section 10A of the SIS Act, persons will be in an interdependent relationship if the following apply;
- they have a close personal relationship; and
- they live together; and
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care.
An exception to part (a) above applies, i.e. that they live together, if the individuals are unable to live together due to a disability.
Generally speaking it would be insufficient for example, for a grandparent to pay school fees for a grandchild to make them a dependant, although this could be one factor that is taken into consideration when determining if an interdependent relationship exists between them.
There is no simple rule for determining where an interdependent relationship exists, the facts will need to be considered on their merits on a case by case basis.
Circumstances regarding the relationship between the member and their nominated beneficiaries may change over time so it is important to review and update any nominations made on a regular basis to ensure their on-going validity. The nomination will only be valid if the relationship remains the same at the date of death of the member.
It is important to note that the definition of ‘dependant’ is different under the SIS Act and Tax Act. There are potential tax implications for not only how the benefits are to be paid (i.e. income stream or as a lump sum), but also who is nominated to receive your benefits on death. This will be explored further in future articles.
If you wish to have your benefits paid to anyone who does not meet the above criteria it may still be possible. A binding nomination can be made to your legal personal representative and have those individuals/groups that you wish to receive your death benefits listed as beneficiaries of your Will.
This content was provided by Xpress Super. For further information please contact Emma Cass on 1300 216 890 or visit the Xpress Super website.
Disclaimer: Any information that is financial product advice is provided by Xpress Super Pty Ltd (AFSL No. 430962) (“Xpress”). The advice provided is general in nature and is not personal financial product advice. The advice provided has been prepared without taking into account your objectives, financial situation or needs and because of this you should, before acting on it, consider the appropriateness of it having regard to your objectives, financial situation and needs. You should carefully read and consider any product disclosure statement that is relevant to any financial product that has been discussed before making any decision about whether to acquire the financial product. Please refer to Xpress’ FSG for further information and information about remuneration and associations with product issuers.