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Avoiding mistakes with superannuation nomination beneficiary forms

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It is generally well understood that an individual is unable to include directions in their Will in relation to the distribution of death benefits by a superannuation fund trustee.

Instead, individual members may nominate a beneficiary or legal personal representative (LPR) to receive their superannuation benefits in the event of their death.

Unfortunately, many superannuation fund members are not aware of this limitation, or opportunity.

For a superannuation fund trustee to accept a member's nomination of beneficiary, the member must nominate either a beneficiary who meets the definition of dependant in the Superannuation Industry (Supervision) Act 1993 (SIS Act), or their LPR, who may then distribute the proceeds in accordance with the Will.

SIS dependants include the member's spouse including defacto and same sex partners, children of any age, a financial dependant, and any person with whom the person has an interdependency relationship. The LPR will either be the executor of an estate with a valid Will, or the administrator of an estate if there is no Will.

Superannuation death benefit dependants

A superannuation death benefit can be paid directly to SIS dependants of the member, thereby allowing the distribution of the benefit to avoid the estate. This is a helpful strategy when there is risk of a challenge to a member's Will, or if there is no Will at all.

The death benefit can also be directed to the member's LPR to deal with on behalf of the estate. Directing benefits to the LPR may be appropriate if there is a Will, depending on the member's estate plans. This strategy may be beneficial, for example, if testamentary trusts are part of their financial plan, or where there are no SIS dependants to whom the member wishes to direct their benefits.

A member may nominate an individual both as their LPR and as a dependant beneficiary in their own right, being careful to indicate in which capacity the individual is acting. The member's Will should line up accordingly.

Methods of nominating a beneficiary 

A member can direct or influence a fund trustee as to how they want their death benefits distributed by completing a non-binding, binding, or non-lapsing binding nomination of beneficiary form, a reversionary pension nomination, or in the case of an SMSF, executing a trust deed amendment.

It should be noted that not all funds will provide all options to their members, and completion of these forms is best done by members in conjunction with their financial adviser and an estate planning lawyer, particularly in the first instance.

Non-binding nominations

Where a non-binding nomination is used, the trustee of the superannuation fund has discretion to pay the benefit to one or more SIS dependants, or to the deceased's estate and that includes the decision on who to pay and in what proportion rests with the trustee.