Estate planning can be a daunting task. Knowing that superannuation and life insurance are not normally part of your estate can help you better arrange your affairs.
What is superannuation?
Most Australians have superannuation, commonly referred to as ‘super’. Super is an arrangement where money is paid by your employer into your super account across your working life to be used when you retire.
How is super dealt with on death?
On the death of a super fund member, a ‘super death benefit’, which is made up of the deceased members remaining super, is paid to a beneficiary or beneficiaries. The form of the super death benefit payment and who it will be paid to varies from fund to fund and will depend on the governing rules of the specific super fund, as well as requirements of the Superannuation Industry (Supervision) Regulations 1994.
The governing rules of some super funds allow members to make binding and non-binding death benefit nominations.
Binding death benefit nomination
A member can nominate who their super death benefit will be paid to on their death by completing a binding death benefit nomination. Such a nomination is binding on the trustee of their super fund, meaning that the trustee has no choice but to distribute the member’s death benefit to the nominated person/s on their death. Binding death benefit nominations typically lapse every three years; therefore, members must be sure to renew their nominations to keep them in place.
Non-binding death benefit nomination
A member can nominate to who they wish their super death benefit to be paid on their death by completing a non-binding death benefit nomination. Unlike a binding death benefit nomination, the trustee of their super fund is not bound by it – they must only have regard to a non-binding death benefit nomination. Usually, non-binding death benefit nominations do not cease to have effect after certain periods of time.
For more information on how super is dealt with on the death of a member, visit the Australian Taxation Office website here.
What is life insurance?
Many Australians take out life insurance to ensure that their family has a financial safety net if they have an accident, suffer a serious illness, or pass away. It is not uncommon for people to hold their life insurance through their superannuation fund.
How is life insurance dealt with on death?
In most cases, life insurance death benefits are payable for deaths from natural causes and accidents.
Like super, when a life insurance policy is taken out, a person can usually nominate a beneficiary or beneficiaries to receive the benefit on their death through binding or non-binding nominations. Where a person holds their life insurance through their superannuation fund, their life insurance death benefit is usually paid as part of their super death benefit. If no nomination is made regarding a person’s life insurance death benefit, then their benefit may be paid to their estate for distribution in accordance with their will.
More information on life insurance can be found here on the Australian Government Money Smart website.
If you are in the estate planning process, the Eleven Legal team can help; contact us today!
